Not as Bad as Expected
Local markets breathed a collective sigh of relief last week as the much awaited Budget 2019 proved to be less harmful than initially expected. Severe austerity measures to cut costs as well as rumours of new taxes did not materialise. Instead, Pakatan Harapan’s (PH) maiden federal budget was a mildly expansionary one which stuck to fiscal consolidation, whilst providing a social safety net to the vulnerable B40 group.
In a 2-hour speech in Parliament, Finance Minister YB Lim Guan Eng outlined 12 strategic thrusts to return Malaysia’s economic position as an Asian Tiger focusing on 3 areas including institutional reforms, shared economic prosperity and fostering a culture of entrepreneurship.
The government had forecasted lower GDP growth of 4.9% for 2019 amidst uncertainty in the global economic landscape. Expectations of lower growth have already been well telegraphed to the market and this lower growth projection had limited impact.
To shore up its revenue base, the government expects to collect a RM30 billion special dividend from Petronas which sends a clear signal to investors that the government would be the one assuming its massive debt burden instead of the Rakyat. The corporate tax rate was also reduced to 17% from 18% for SMEs with paid-up capital below RM2.5 million and businesses with annual taxable income below RM500,000.
Other measures to boost the national coffers include the proposed setting-up of an airport REIT, where the government hopes to raise RM4billion via a 30% equity stake sale. Complications behind the ownership of Malaysia Airports Holdings Bhd (MAHB) which is also currently undergoing a restructuring and yield levels that are required to launch such a REIT given its limited lifespan may be a challenge.