Putrajaya is counting on a 6% GST started in April to offset reduced revenues from oil. The government expects to collect RM27 billion from GST this year and RM39 billion in 2016. – The Malaysian Insider pic by Seth Akmal, October 23, 2015.
Prime Minister Datuk Seri Najib Razak is embracing a Robin Hood approach in his Budget 2016, increasing the tax on the country’s highest earners to fund measures to boost consumption and investment needed to shore up a cooling economy.
Those earning RM600,000 to RM1 million annually will be taxed at 26% from 25% now, while those making more than RM1 million a year will pay a rate of 28%, Najib said in his annual budget speech in Kuala Lumpur today.
He announced billions of ringgit in funding to build rural roads, boost Internet speeds, agriculture and tourism, and increase civil servant salaries.
The budget’s focus underscores the political and economic challenges Najib faces in keeping the nation on track to achieve high-income nation status by the end of the decade.
The plunge in oil prices and a slowing global economy is hurting export earnings and government revenue, while the embattled leader faces calls to step down after a multi-million-dollar funding scandal contributed to a pullout by foreign investors from stocks and bonds and a weakening currency.
“Despite the constraints on financial resources, the government remains sensitive to the difficulties faced by Malaysians,” Najib said in Parliament.
Accelerate projects
Najib is counting on domestic demand to shore up a cooling economy as global growth falters, pledging to boost consumption, spur private investment and accelerate selected public infrastructure projects next year. And he plans to achieve this without deepening the budget deficit even as oil revenue shrinks.
The government predicts gross domestic product will expand 4% to 5% in 2016, from 4.5% to 5.5% this year, the Ministry of Finance said in its 2015/2016 economic report released today.
The fiscal shortfall is forecast to narrow to 3.1% of GDP in 2016, from a revised 3.2% this year.
“Taking into cognisance the weaker external environment, the government will implement policies that will further strengthen the resilience of the domestic economy,” the ministry said.
“Efforts will be taken to boost consumption by raising disposable income through creating more jobs and addressing the rising cost of living.”
Rural spending
Najib’s administration will intensify efforts to draw foreign direct investments, build a 1,796km highway spanning the eastern Sabah and Sarawak states, boost the social safety net and enhance utilities in rural areas, according to the report.
“The challenges confronting the economy in 2015 are expected to persist in 2016,” the Finance Ministry said, highlighting concerns, including heightened financial market volatility and a slowing Chinese economy.
Najib reiterated a commitment to balance the budget by 2020 amid increased challenges, according to the report. The federal government debt is estimated to be 54% of GDP as of end- June, from 52.7% in 2014, and will be within the 55% limit in 2016, the report said.
Delicate balance
“The government will continue to strike a delicate balance between supporting the growth momentum and ongoing reform initiatives while ensuring public finances remain sound,” Najib said in the report.
The ringgit strengthened 1.%6 to 4.2205 per dollar today, following a 3.9% loss in the last five trading days, according to prices from local banks compiled by Bloomberg. The currency is the worst performer in Asia this year and has depreciated about 17% against the dollar.
Najib is counting on a 6% goods and services tax started in April to offset reduced revenues from oil. The government expects to collect RM27 billion from GST this year, and RM39 billion in 2016, it said.
Consumer prices are forecast to rise 2% to 3% in 2016, compared with 2% to 2.5% this year, the ministry said.
Inflation averaged 1.9% in the first eight months this year. Despite a weak ringgit, inflation is expected to remain benign because of low oil prices and the waning impact of GST, it said. The central bank left interest rates unchanged for a seventh meeting last month. – Bloomberg
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