Key announcements-
The Malaysian economy grew by 5.3 per cent in the first half of 2015 and is expected to expand by 4.5 per cent-5.5 per cent in 2016 despite a slower global growth of 3.1 per cent. There was an inflow of foreign direct investment of RM 22.4 billion in the first half of 2015. Despite the ringgit’s depreciation, international reserves remained high at
RM 418 billion as of October 2015. Moreover, the inflation rate is expected to remain manageable at between 2 per cent and 3 per cent in 2016.
Budget allocation
Budget 2015-16 projects a total expenditure of RM 267.2 billion compared with the revised expenditure of RM 260.7 billion in 2015. Of this amount, RM 215.2 billion has been earmarked for operating expenditure and RM 52 billion for development expenditure. Under development expenditure, the economic sector received the highest share at RM 30.1 billion, followed by the social sector at RM 13.1 billion for education and training, health, housing and the well-being of people. In 2016, the federal government revenue collection is estimated at RM 225.7 billion, an increase of RM 3.2 billion compared to 2015. Taking into account the revenue and expenditure forecast, the fiscal deficit is expected to decline to 3.1 per cent of gross domestic product (GDP) in 2016.
Budget priorities
The budget is based on five priorities aimed at striking a balance between a capital economy and a people economy. These are listed below:
- Strengthening economic resilience
- Increasing productivity, innovation, and green technology
- Empowering human capital
- Advancing the bumiputera agenda
- Easing cost of living of the rakyat
First priority: Strengthening economic resilience
The government has prepared a roadmap to underpin the economic performance of the country. A focus on boosting domestic investment, invigorating the capital market, energising small and medium enterprises, improving infrastructure, and promoting tourism sector is expected to generate and strengthen economic activities. The contribution of domestic investment to GDP is estimated at 26.7 per cent in 2016. This requires private investment of RM 218.6 billion supported by public investment of RM 112.2 billion. Key projects being implemented in a bid to attract private investment include the development of the Malaysian Vision Valley, the Cyber City Centre in Cyberjaya, the Refinery and Petrochemical Integrated Development Project Complex in Pengerang, and the Kuala Lumpur International Airport Aeropolis entailing a total investment of RM 41 billion.
In order to invigorate the capital market, the government will provide tax deduction on issuance costs of sustainable and responsible investments (SRIs) sukuk and 20 per cent stamp duty exemption on Sharia-compliant loan instruments to finance the purchase of houses.
Infrastructure development is a prerequisite for a country’s overall economic and social development. The following allocations have been made to strengthen the infrastructure of Malaysia:
- RM 900 million has been allocated to resolve Kuala Lumpur traffic congestion.
- RM 82.5 billion has been earmarked to enhance the public transport system.
- RM 42 million has been provided for the construction of Mukah airport, Sarawak, as well as for upgrading airports in Kuantan and Kota Bharu.
- RM 1.2 billion will be provided by Malaysian Communications and Multimedia Commission (MCMC) to improve the telecommunications infrastructure.
- RM 250 million has been allocated for the national broadcasting digitisation project to enhance audio-visual quality and provide value-add to TV content as well as interactive data transactions.
- RM 1.4 billion has been dedicated towards building and upgrading 700 km of rural roads nationwide. Further, RM 67 million is allocated for operating buses on uneconomic routes in rural areas.
- RM 878 million and RM 568 million have been appropriated for undertaking a rural electrification project covering 10,000 houses and a rural water supply project benefiting 3,000 houses respectively.
Besides, the government will continue to improve logistics infrastructure, including building and improving the rail transport network and highways in 2016. These include the highways of Damansara-Shah Alam, Sungai Besi-Ulu Klang, Pulau Indah and the Central Spine Road.
Second priority: Increasing productivity, innovation, and green technology
The increasing awareness of sustaining the environment and natural resources among developing nations has led to the adoption of green technology. Therefore, the Ministry of Energy, Green Technology and Water, Malaysia, will build water treatment plants with an allocation of RM 877 million. A sum of RM 515 million has been set aside for ensuring the reliability of electricity supply in Sabah. The government will extend the implementation period of the green technology financing scheme until December 31, 2017, with a fund of RM 1.2 billion.
The government will encourage the use of the industrialised building system (IBS) in the construction sector. It is a sustainable, innovative technique and implements repetitive manufacturing using green materials. For this, an IBS promotion fund of RM 500 million will be established through the SME Bank to provide soft loans to developers and contractors in category G5 and below.
Goods and services tax
Various measures have been taken to improve goods and services tax (GST) treatment, which will be effective from January 1, 2016. The budget has allowed companies involved in maintenance, repair and overhaul (MRO) in the aerospace industry to participate in the approved trader scheme, which exempts them from paying GST on imported goods. Other measures include GST relief for the reimport of goods that were exported temporarily for the purpose of promotion, research or exhibition; on the reimport of equipment that was temporarily exported for the purpose of rental and lease such as oil platform equipment and floating platforms for the oil and gas industries; and for procurement of teaching materials and equipment by skills and vocational training providers under the National Skills Development Act, 2006. GST is expected to raise RM 39 billion in 2016 against the RM 27 billion collected in the first eight months of 2015.
Outlook
The government’s predictions for 2016 include a 4 per cent to 5 per cent increase in GDP with private investment and consumption being touted as the key drivers of growth. National revenue is expected to register some growth in 2016 despite weak oil prices due to strong GST collection, which will be a key contributor to government revenue. Overall, Budget 2015-16 provides a promising foundation to support both businesses and individuals.
