Friday, November 22

Budget 2020: The start of a new era

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Budget 2020 is answering the call of its people by introducing measures to attract more investments to push the country into the next frontiers of growth and create new jobs with better wages; all the while being prudent with the nation’s coffer and ensuring wealth is well distributed in the spirit of shared prosperity.

Unveiled by Finance Minister Lim Guan Eng in Parliament, the four thrusts anchor the budget themed, “Driving Growth And Equitable Outcomes Towards Shared Prosperity” among which is driving economic growth in the new economy.

The others are investing in Malaysia; levelling up human capital; creating a united, inclusive and equitable society; and revitalising public institutions and finances.

To attract targeted Fortune 500 companies and global unicorns in high technology, manufacturing, creative and new economic sectors, the government will make available up to RM1 billion worth of customised packaged incentives annually over five years, Lim said.

This is the second budget being tabled by the Pakatan Harapan government since securing the mandate after the 14th General election.

The budget also make available RM1 billion in customised packaged investment incentives annually over five years to transform Malaysia’s best and most promising businesses into the most competitive enterprises in the global export market.

The government will also provide tax incentives to further promote high-value added activities in electrical and electronic industries to transition into the 5G Digital Economy and Industrial 4.0.

“The Pakatan Harapan government is committed to continuously improving the business climate in Malaysia.

“One of the key reforms to be implemented is the ease of doing business by reducing the number of steps to register a business,” Lim said.

Given that small and medium enterprises will continue to be the nation’s backbone the government will continue to support up and coming entrepreneurs through the SME Bank, which will introduce two new funds, with the government providing an annual interest subsidy of two percent to reduce borrowing costs.

“For SMEs to remain competitive, they must continuously expand their export,” Lim said.

RM297 bln allocated for expenditure

The government is allocating RM297 billion in total expenditure under the 2020 Budget – RM19.5 billion more than the RM277.5 billion allocated last year. This is not inclusive of RM2 billion reserved for contingencies.

“The 2020 Budget comprises operating expenditure of RM241 billion and development expenditure of RM56 billion,” he said.

Lim said the government expects to collect RM244.5 billion in revenue next year – an increase of RM11.2 billion from 2019 – after excluding the one-off Petronas special dividend of RM30 billion.

He said the government will dispose of assets which have been approved previously via a competitive bidding process to realise the full potential of these assets.

This is expected to generate over RM3 billion of revenue in 2020, he said.

This proves Lim’s point about Budget 2020 being growth-centric, with precisely designed measures to optimise the impact on economic growth, job creation and structural change, without compromising the government’s commitment to restore Malaysia’s fiscal health in the medium term.

He said Malaysia’s economy will remain resilient going forward as a result of the budgetary measures, adding that gross domestic product is expected to grow by 4.7 per cent this year and improve to 4.8 per cent in 2020.

Inflation is expected to remain well anchored at 2.0 per cent in 2020, said Lim.

“In the event of continued worse-than-expected external environment, the government is ready to step in with contingency measures to provide further support or stimulus to growth,” he added.

 

Highlights of Economic Report 2020

• Prospects for the Malaysian economy remain robust amid increasing uncertainties in the external environment with the country’s real gross domestic product (GDP) expected to grow by 4.7 per cent and 4.8 per cent in 2019 and 2020 respectively.

• Global growth is expected to remain modest moving forward, supported by solid domestic demand in emerging market and developing economies (EMDEs).

• The government places a premium on economic growth with widespread use of new technology along with private investment in high-value, high-technology and knowledge base areas to drive the nation towards high-income status.

• Inflation is projected to expand two per cent in 2020 mainly due to the expected introduction of targeted fuel subsidy.

• The federal government is expected to raise gross borrowings of RM135.2 billion or 8.9 per cent of GDP in 2019. Of the RM132.5 billion, 94.5 per cent or RM127.7 billion comprises domestic borrowings, while the remaining RM7.5 billion is offshore issuance.

• In 2020, overall gross exports are expected to expand 1.0 per cent from the anticipated improvement in global trade activities and the uptick in the electrical and electronics (E&E) cycle.

• The country’s monetary and financial conditions are expected to remain accommodative and supportive of economic growth, with operations to be supported by vibrant money and foreign exchange markets, as well as intermediation activities.

• A total of RM297 billion or 18.4 per cent of the GDP will be allocated for Budget 2020, of which 81.1 per cent or RM241 billion is for operating expenditure (OE) while the balance of RM56 billion is for development expenditure (DE).

• The government has developed the Debt Sustainability Analysis (DSA) to conduct public and external debt sustainability analysis as a tool to better detect and prevent a potential crisis.

• The formulation of action plans to achieve the objectives of the Shared Prosperity Vision 2030 (WKB2030) requires an understanding of how the world and Malaysia would look like in 2030.

• The government expects the 2020 fiscal deficit to be at 3.2 per cent of GDP, slightly higher than the three per cent originally announced in the 2019 Budget.

• The manufacturing sector is expected to grow 4.1 per cent by 2020, driven by steady improvement in the export-oriented industries coupled with sustained expansion in the domestic-oriented industries.

• The consolidated public sector’s (CPS) financial position is anticipated to record a lower current surplus of RM42.2 billion in 2019, due to the allocation for outstanding tax refunds.

 

Budget reactions from Corporate Malaysia

Tengku Datuk Seri Zafrul Aziz

“This is a budget that truly reflects the government’s shared prosperity vision, carefully curated to benefit the Rakyat across all major races, and main segments like the SMEs and the B40.

“We laud the sharper focus on advancing the nation’s digital transformation, while also ensuring the benefits will be broad-based, enabling all segments of society to capitalise on the country’s enablement of 5G and other new technologies.

“This is clear from the tax incentives for knowledge-based foreign investors and encouraging a cashless society, to piloting technology like autonomous vehicles and blockchain.

“As a strong proponent and enabler of digital banking, we welcome the initiative to advance the nation’s cashless agenda by boosting the use of e-wallets, through the one-time RM30 digital stimulus per qualified Malaysian.

“Further, the enabling policies for SMEs to embrace digital in running their business are well thought out. Going digital is crucial for them to capitalise on the potential afforded by the regional and global e-commerce industry.

“An additional boost to SMEs is the government’s incentives on the development and certification of halal businesses, which will feed into the global halal market valued at US$3 trillion.

“In tandem with this objective, we are ever-prepared to assist SMEs to leverage on CIMB Islamic’s Halal Corridor for them to capture part of that fast-growing halal market.

“CIMB also looks forward to BNM’s announcement on the digital banking licence, which we will definitely consider. We welcome the government’s support for SRI Sukuk, as well as tax incentive for investments in renewable energy technology right through to 2023.

“In particular, the generous 10-year 70 per cent tax exemption for solar leasing technology, together with CIMB’s SME Renewable Energy Financing package will be a definite boost to SMEs’ adoption of renewable energy. All these will help support the nation’s move towards an eco-friendlier operating landscape.

— Tengku Datuk Seri Zafrul Aziz, CIMB group chief executive officer

 

Sean Goh

“On behalf of Grab, we are excited and supportive of the 2020 National Budget announcement. We believe that this vision of shared prosperity drives Malaysia forward via technology and innovation towards a more inclusive economy and nation.

“We also welcome our government’s direction to encourage a cashless community. Based on a study by Nielsen, only eight per cent of Malaysians use e-wallets. A progressive, cashless economy would help micro-entrepreneurs and SMEs grow without the cost, burden and safety concerns that comes with managing cash.

“On Grab’s part, since the launch of our e-wallet, GrabPay, we have introduced various new features, such as “Pay with GrabPay” (Online acceptance) and “GrabPay Price”, to help cultivate a more affordable cashless habit to serve the everyday needs of our consumers.

“Finally, we are committed to work alongside our government, ministries and partners to help bring to life the vision behind the 2020 National Budget and the 12th Malaysia Plan, and to create a progressive economic environment that is inclusive, dynamic and resilient.”

— Sean Goh, Grab Malaysia country head

 

Roland Bala

“We acknowledge the Government’s decision to maintain current tax rates, particularly the excise duties on beer as well as the Sales and Services Tax (SST). The excise on beer in Malaysia is already amongst the highest in the world, resulting in a big gap between duty paid and duty not paid beers and stouts.

“This wide gap has led the influx of illicit trade to thrive over the years. We commend the government for this measured approach and not increasing the excise duties further but continue to demonstrate its commitment towards creating a progressive and more prosperous Malaysia for all.

“We also thank the Government and the Royal Malaysian Customs Department for their on-going efforts in addressing the illicit alcohol issue as this represents revenue leakages to both government and industry.”

— Roland Bala, Heineken Malaysia Bhd managing director

 

Datuk Ong Eng Bin

“We are glad that despite the lower revenues projected for 2020, the government was pragmatic enough to surpass its earlier budget deficit targets. This is a good move that helps to support the local economy amidst the uncertainties brought about by the ongoing US-China trade war and the slowing global economy.

“We are heartened by the focus on growing the digital economy as well as the incentives and exemptions provided for the Green investments, to which OCBC Bank is deeply committed.

“At the same time it is timely that incentives have been put in place to reduce our dependency on foreign labour. For the man in the street whose key concerns are the cost of living and rising prices, it certainly comes as a great relief that the GST will not be reintroduced despite earlier speculation to the contrary.

“Overall, this is a decent Budget for all amidst the significant challenges being faced.”

— Datuk Ong Eng Bin, OCBC Bank chief executive officer

 

Abrar A Anwar

“Standard Chartered welcomes the move by the Malaysian government to introduce special investment packages worth up to RM1 billion a year for five years to Fortune 500 companies, “global unicorns” as well as local companies that are able to break through to international markets.

“Being a financial institution dedicated to promoting the growth and development of dynamic SMEs, we are pleased to see MYR300 million worth of allocations to support SMEs that have the potential to become regional players.

“The continued growth of SMEs and entrepreneurs is key to a robust economy and we are pleased to see the government continue to pay close attention to this sector. SMEs are crucial engine of economic growth and job creation, and are becoming increasingly active in global trade.

“As a Bank which is at the forefront of digital banking, we support the government’s commitment in moving Malaysia towards a digital economy via various tax incentives, setting up one-stop digital improvement centres nationwide, as well as stimulation packages to boost adoption of e-wallets.

“This will have a lasting and positive impact on the financial services industry, and we take pride in walking side by side with the government on its digital initiatives. We are also looking forward to the availability of virtual bank licenses by Bank Negara Malaysia in 2020.”

— Abrar A Anwar, Standard Chartered Malaysia managing director and chief executive officer

 

Lim Poh Yit

“We opine that the government’s initiative to reduce the threshold value for property purchases in the city (for condominiums and apartments) for foreign purchases from RM1 million to RM600k will definitely help to increase the sales of unsold high-rise units.

“The Government had also stated that it will work with financial institutions to introduce the Rent To Own (RTO) financing scheme to help people that find difficulty in paying the 10% deposit when purchasing homes.

“This will help to reduce the burden for young working adults and families who face rising living costs and enable them to finally own a home.

“Waiving the stamp duty for ownership transfer between developer and bank as well as between buyer and bank is also a good move to rejuvenate the property industry’s performance. The Budget 2020 announcements are warmly received by Titijaya as most of our property offerings fall in the price range of RM600,000. We are encouraged by the new developments and shall wait for further details to be announced so that we can work towards our common goals together with the Government and the nation.”

— Lim Poh Yit, Titijaya Land Bhd deputy group managing director

 

WKB 2030 a major part of Budgets going forth

A major component of Budget 2020 and all future budgets coming up to the year 2030 will be the Shared Prosperity Vision, or Wawasan Kemakmuran Bersama 2030 (WKB 2030) blueprint.

Five months after the announcement of a Shared Prosperity 2030 approach during the first year anniversary of Pakatan Harapan government on May 9 this year, the Prime Minister finally launched the official blueprint on October 5, 2019.

It outlines 10-year goals to move Malaysia from being a country with a reliance on unskilled low-paying workers to a nation with high-income, high-skilled labour force that is capable of attracting new investments and opportunities – in line with the latest developments in science and technology. In doing so, the aim is to achieve sustainable growth along with fair and equitable distribution across income groups, ethnicities, regions, and supply chains.

The goals were announced as a blueprint for the 2021-2030 period, with policies in the 2020 Budget designed to steer the country towards that vision.

RHB Research Institute Sdn Bhd (RHB Research) economists Vincent Loo and Ahmad Nazmi Idrus said Malaysia already has several national policies that are steering towards industrial and socioeconomic development, eg the New Economic Policy (NEP), Third Industrial Masterplan, 11th Malaysia Plan, and National Transformation 2050.

“At their core, the goals among these national policies remains the same: Promote higher equitable growth,” they said in a note on the vision.

“However, WKB 2030 allows the Pakatan Harapan Government to design policies reflective of its main ideals – one of which is to focus on equitability of opportunity over the equitability of outcome, as was the goal of the NEP.

“Moreover, WKB 2030 acts as a continuation of much of the aforementioned policies, many of which are ending in 2020.

“The WKB 2030, in our view, is a sound plan. So far, it provides a general strategy for future economic planning, but stops short on the methods to do so.

“As with most government policies, the key always lies in their execution. However, the way to drive the 15 key economic activities identified in the plan need to be put out clearly.”


Clear emphasis on bridging the gap

Kenanga Investment Bank Bhd (Kenanga Research) affirmed that the KWB 2030 highlights income disparity, as being amongst the key issues which the vision aims to tackle.

“Specifically, it recognises the existence of widening income gap between employees and capital owners, T-20 and B-40, urban and rural as well as across states,” it added.

“The economy is expanding at below potential, with still insufficient technology adoption and diversification in sources of growth, whereby exports of petroleum and gas widened its share of overall exports from six per cent in 1998 to 15.5 per cent in 2018.

“Of note, Bumiputera concerns also appear as the priority of the vison, covering areas ranging from income, employment and small and medium-sized enterprises (SMEs). We view that the government manages to rightly bring the attention towards the high-stakes issues, similar to those underscoring the World Bank’s Shared Prosperity agenda.”

WKB 2030 has been framed into four layers, with the first being three objectives, which are development for all, addressing wealth and income disparities and united prosperous and dignified nation, followed by 15 guiding principles.

It is then further broken down into seven thrusts, standing out as the most crucial segment of the overall blueprint, providing a comprehensive overview of the areas that the government is trying to improve.

The first four thrusts hover around the economic growth side, while the last three thrusts are focused on the issue of inclusivity, with one of them targets to develop new regional economic hotspots outside Klang Valley, similar to those evident in the advanced economies.

Complementing the thrusts, 15 new sectors or termed as Key Economic Growth Areas (KEGA) and proposed distribution of the sectors by state have been specified.

“While the approach of tapping into new sources of growth and adopting a niche-based planning for development at the state-level is commendable, we could observe some redundancy in the new sectors listed and we foresee further fine tuning is required for the distribution list,” Kenanga Research opined.

“For example, digital economy and industrial revolution 4.0 are those that overlap each other and which may pose hurdles and result in inefficient usage of resources when executing the development plan.

“As for the proposed distribution of KEGA by state, we reckon that before finalising the list, a thorough consultation with state agencies and local leaders are vital as to enact some sense of ownership to the overall blueprint as well as to ensure smooth implementation of policies.”

It went on to furter say that the goal of achieving RM3.4 tillion (nominal) economic size in 2030 may be unattainable with WKB’s projection of 4.7 per cent average real GDP growth per annum between 2021 and 2030.

“Based on our calculation, with a 4.7 per cent average real GDP growth rate, the economy would probably reach RM2.3 trillion (real) GDP in 2030.

“If converted to a nominal value, according to historical trends, the difference between the nominal and real value should not be far off. Using a 10-year (2009-2019) average deflator of about 1.5 per cent, we estimated that nominal GDP value would only reach up to RM2.9 trillion.

“This is still about RM0.5 trillion short of the RM3.4 trillion target. This assumes that the economy would grow on a relatively smooth growth trajectory, possibly devoid of shocks or random economic events.

“Hence, to reach the growth target it requires a much faster pace of expansion. Apart from this, we reckon other envisioned goals, given the right planning, monitoring and execution, are realistic and attainable.”


Gearing towards export-orented industrialisation

The RHB Research economists believed there was no easy way to achieve higher-income distribution, but to gear towards export-oriented industrialisation. Malaysia’s small domestic market will limit its growth potential.

However, the challenge for constant higher growth will not be easy, as export-oriented industrialisation is mired in tough global competition, especially from China.

“To ensure the success of an export-oriented policy, it needs to be led by big corporations with sizeable foreign direct investments and domestic direct investments,” they said. “This is not likely to be easy as well, in our view, given the keen competition.

“In addition, this also needs to be supported by a pool of skilled labour that is educated and prepared for Industry 4.0, Artificial Intelligence, and big data – which may take time to yield the right results.

“As a result, the focus on education is equally as important to focus on – alongside industry-centric goals – in achieving the targets outlined under SVP 2030.

“Moreover, as we have seen in the past, achieving the socioeconomic balance alongside economic growth should be a challenge, as the two do not necessarily move together. Hence, a mix of the right policies is crucial.

“Finally, the compensation of employees at 48 per cent of GDP – up from 35.7 per cent – sounds ambitious, in our view. Similarly, the target of 4.7 per cent average GDP growth is also slightly on the optimistic side, given the humongous task in executing the plan.”

The formulation of action plans to achieve the objectives of WKB 2030 requires an understanding of how the world and Malaysia would look like in 2030.

In the Economic Outlook report released on Friday, the Ministry of Finance said the country has to be mindful of other factors shaping its future as the world is undergoing a transformation in terms of population growth, demand for natural resources, globalisation trend and climate change.

“The world is in the middle of a dramatic transition, and the most critical transformation was the shift in both economic and political power, hence an understanding of the global population and emerging trends,” the report stated.

“Although 2030 is 11 years away, clear megatrends are shaping the world, presenting both challenges and opportunities.

“The current global economy is facing a confluence of risks, including an escalation of trade disputes, an abrupt tightening of global financial conditions and intensifying climate risks, which could disrupt economic activities and jeopardise long-term development prospects, said the report.”

It went on to pinpoint four global forces that shape the world of today: demography, natural resources, globalisation and climate change.

The four forces are expected to have similar effects on Malaysia.

“Globalisation has enabled a gradual change in economic power, citing that in 2000, advanced economies generated 57 per cent of global output, measured by Purchasing Power Parity (PPP),” it added.

“By 2024, according to a forecast by the International Monetary Fund (IMF), the share of advanced economies on global out will fall to 37 per cent.

“And by 2030, China’s economic growth at PPP is projected to increase to US$38 trillion, retaining its position as the largest economy, followed by the United States and India with Malaysia is expected to rise to 25th position from 27th.”

Citing a study, the report said the relative position of countries in terms of performance depends on various factors such as the emergence of an inward-looking policy, which may result in a slowdown or even reversal of globalisation.

Malaysia it said, is also approaching an ageing nation status by 2030 as projection showed that 15 per cent of the population will be over 60 years old compared to 10 per cent in 2019.