Budget 2019: Economic Highlights and Un-Budgeted Items?

From the recently announced Budget 2019 themed as 'Malaysia Wibawa, Ekonomi Dinamik, Rakyat Sejahtera', it will have 3 focus areas, and 12 main strategies to put the country back as an "Asian Tiger" again (hopefully), as what we enjoyed during 1990s until the Asian financial crisis.

Below is the 3 focus areas:

• 1st : Implement institutional reforms
• 2nd : Ensure people's well-being
• 3rd : Nurture a culture of entrepreneurship

The very first budget announcement from the new government after 60 years of independence caught the eyes of the world, especially economists, to gauge the thinking of the new ruling coalition's future policies. Well, it was considered as an expansionary budget, although facing fiscal constraint, partly due to 1MDB scandal.

Economic Highlights from Budget 2019:

1. Government real debt and liabilities as at end-June 2018 stood at RM1.065 trillion, which is RM350 billion more than the official sum revealed by the previous government
2. Forecasts 2018 GDP growth at 4.8%
3. Forecasts 2019 GDP growth at 4.9%
4. Debt for 2019 expected to reach 51.8% of GDP
5. Total liability in 2019 expected to declines to 73.5%
6. Budget deficit for 2018 revised to 3.7% vs 2.8% previously (after taking into the 'real' debt figures)
7. However, the fiscal deficit is projected to narrow to 3.4% of GDP in 2019

Huh? What is the so called "un-budgeted items" by previous goverment?

According to the Budget 2019 speech, the increase in fiscal deficit arises after taking into account previously un-budgeted items such as below:

• RM1.0bn interest servicing cost for 1MDB debts,
• RM1.3bn in compensation for the acquisition of Eastern Dispersal Link in Johor which was announced last year,
• RM1.0bn for Prasarana,
• RM1.4bn for Ministry of Transport rail projects, and
• paying back some GST refunds of RM3.9bn.
  

Well, well, well... It's good that the new government is transparent about our financial health. However, this would not be good in the eyes of rating agencies, which may potentially downgrading our credit rating later. What do you think?

"Although the 2018-2019 budget deficits were adjusted higher – derailing theoriginal course of fiscal consolidation – we are confident that international ratingagencies will look past this as a one-off event." ~ RHB Research

"Over the medium term, the deficit is seen reducing to the region of 2%, though the government did not mention the exact time period. As such, we do not foresee any changes in Malaysia’s sovereign credit rating." ~ TA Securities

Below is the info-pictures designed by Finance Malaysia team to highlights some of the key announcements:

Next we will blog about the possible winners and losers for share investors. Stay tuned !!!

What is the implication of SST on financial products & services? (Aug 2018)

The Ministry of Finance has announced that 6% of Service Tax will come into effect in Malaysia on 1st September 2018, repealing the Goods and Services Tax (GST) which was first introduced as 6% on 1st April 2015 and further reduced to 0% on 1st June 2018.

Unlike GST which taxes all goods and services unless an exemption is provided, Service Tax is only charged on certain prescribed services made by prescribed taxable persons.

For Life Insurance products, Service Tax of 6% will be chargeable on the premiums of products below:

B2B (Business to Business) – Policies sold to an institution (where policyowner is an organization) or policies assigned to an institution (where assignee is an organization)

B2C (Business to Consumer) – Policies sold to an individual or policies assigned to an individual

For Employee Benefits products, Service Tax of 6% will be chargeable on the premiums of products below:

For General Insurance, the 6% Service Tax shall be charged on *all types of insurance contracts to cover any risks incurred in Malaysia to an individual or business organization *EXCEPT the areas listed in below.

How about those car insurance bought or renewed between June to August 2018?
Under the regulations, car insurance is subjected to a 6% tax. In this case, insurance companies can chase back the tax (although already renewed) for the period starting 1st Sept onwards on a pro-rate basis.

Not a popular one...

Provision of credit card or charge card services. A specific rate of tax of RM25 is imposed upon the issuance of principal or supplementary card and every subsequent year or part thereof.

How about investment via a unit trust (UT) scheme / private retirement scheme (PRS)?
Based on the Regulations, the services provided by asset and fund managers are excluded from the ambit of service tax. So, sales charge will not be subjected to service tax effective from 1st September 2018, which is good for the asset management industry.

How about share trading services?
Another beneficiary of SST implementation would be the capital market as well. Compared to GST, all share trading services will not be subjected to SST (although stamp duty still applies). Hopefully, more retail participation could be seen after 1st September 2018.