Cutting budget deficit seen among key focus of Budget 2014

Published: Friday October 11, 2013 MYT 12:00:00 AM 

Updated: Friday October 11, 2013 MYT 7:57:55 AM

PETALING JAYA: The key focus of Budget 2014 would be on fiscal prudence towards reducing the budget deficit to 3% of gross domestic product, a balanced budget by 2020 and policy reforms to make Malaysia a global competitive economy, said Alliance Research.

Alliance Research economist Manokaran Mottain said in a report that the focus would also be on improving the quality of life of the people, while ensuring sustainable growth. The goods and services tax (GST) would likely be implemented in 2015, as preparation would take at least 12-18 months.

“Budget 2014 would focus on a balanced and quality growth, while maintaining price stability amid the rising cost of living, as well as maintaining fiscal consolidation with more bold policy reforms to raise the country’s competitiveness and efficiency.

“The Government would also be realistic on its growth targets, which we expect to range between 4.5% and 5.5% in 2014,” he said.

Manokaran said the Government would be committed to addressing the persistent and long-standing fiscal strains on its coffers.

The research house estimates that the budget deficit for 2014 would be trimmed further to 3.5%, from an estimated 4% in 2013. With the sequencing of some of the low-multiplier and high import-content projects under the Economic Transformation Programme, Alliance Research is confident this would reduce the risk of Malaysia slipping into a current account deficit.

In addition, the recent fuel subsidy cut of 20 sen would help the Government save RM1.1bil in 2013 and RM3.3bil in 2014. “Beyond this, we expect an additional subsidy cut of 20 sen per litre for RON95 and 10 sen per litre for diesel over the next six months,” he said.

Manokaran expects the Government to announce a timeline for the implementation of the GST in 2015, as it may need a period of 12 to 18 months for the parliamentary processes before it is legislated.

“We opine that the ideal rate for the GST for a start could likely be between 4% and 5%, with some essential items and services being exempted. While we are hopeful that the Government might reduce corporate and personal income taxes, we do not expect to see any reduction in 2014, in view of our expectations that the GST would only be implemented in 2015,” he added.

Alliance Research expects the ceiling for the 1Malaysia People’s Aid (BR1M) to be increased to RM5,000. The Government provides the BR1M for households earning a monthly income of less than RM3,000.

“We expect a full-year growth of 4.5% in 2013, at the lower end of Bank Negara’s revised forecast of 4.5% to 5% in 2013.

“For 2014, we expect growth to pick up to 5%, underpinned by robust domestic demand and improving external conditions,” Manokaran said, adding that he forecast an inflation target of 3.2% in 2014 due to the impact of further subsidy cuts.