Budget Victims & Outlook

The Budget Day will be on 29 August, just before National Day celebrations. Interestingly enough, Budget Day will be held 3 days after the Permatang Pauh's by-election on 26 August. Hence many are of the opinion that this Budget could have a lot more goodies for the general public, following the upset in March's General Elections and the bitter medicine of the fuel price hike (and the electricity price hike as well). Bank Negara already stated that growth is a more important consideration compared to inflationary pressures.

Can we also see a Budget that is geared towards growth and not so much to quell inflation? The amount of revision that will be going into construction projects will make the spending budget look big, but in actual fact, just to keep up with building material price hikes will put many billions into the construction budget.

Simple political strategy that should not escape our eyes: GET OUT YOUR UNPOPULAR MOVES FIRST, let the people moan and groan, then give them PRESENTS & CANDIES, they are all like little kids, they will forget the pain very quickly. We saw the windfall taxes, we saw the fuel hikes, we saw the electricity tariffs hike - there were no goodies at all. Hence I believe strongly it will be a Budget that is not only feel-good, but one with ribbons and bows as well. Primary concern: put more money into people's wallets, make sure jobs are there, make sure domestic demand is well supported, make sure price inflation is contained, hence some big projects may be on hold.

In order to bring about a people friendly and people-happy budget, there must be cutbacks from some areas, better tax collections and a dramatic reallocation of resources.

Things that will make the people happy:
a) Increase tax free threshold from RM35,000p.a. to RM40,000 at least.
b) Reduce top personal tax rate from 28% to 26%.
c) Reduce corporate tax rate gradually to 25% by 2009 and to 24% by 2010.
d) Release bumi quota properties after 6 months of project launch or when 50% of project has been completed.
e) Fuel price to be dropped to RM2.40 with immediate effect, with a quarterly review, and to maintain the 30 sen/l subsidy (maybe).
f) Raise the low-cost housing ceiling from RM42,000 to maybe RM65,000-RM70,000.
g) Will make REITs dividends to be tax exempt.
h) May shelve or postpone a few mega projects, which will free up some resources for reallocation.

Unlikely to:
a) Reduce employees contribution to EPF because savings via EPF is already considered to be insufficient to meet most people's retirement needs.
b) Reduce property stamp duty for house purchases (at 2%-3%) as the housing prices appear to some element of speculation already.
c) Allow funding or borrowing cost for housing to be tax deductible (for same reasons as above).
d) Provide relief for manufacturers or any companies for that matter over the fuel, gas and electricity hikes - if anything it is exactly this group that should have the "subsidy" taken away from them, with so many things favouring them by operating in Malaysia (low cost of land, labour and logistics), they certainly need to compete with gas, fuel and electricity at global prices.

The Budget Victims:
a) Tobacco companies will be lumped with at least a 10%-15% jump in excise tax, which will translate to 2-2.5 sen per stick, which will mean for a box of 20s the hike will be 40 sen to 50 sen.
b) Casino will definitely kena. The casino tax is at 25% and may be hiked to 26% or even 27%. Each percentage point hike will shave Resorts's net profit by 2% roughly. The corresponding effect on Genting is roughly half of Resorts' impact.
c) Brewery companies may actually escape with no excise tax hike or just a minimal 5% hike, and not the 10%-15% as predicted by many. Reasons for that are that: Malaysia's excise duty is already the second highest globally; consumption has fallen since the sharp 50% cumulative hike from 2004-2006; and brewery companies already a victim of the commodity price hikes.