Published: 2013/10/24
PUSH FOR REFORMS: Research house says this can prevent downgrade by agencies
THE 2014 Budget is likely to announce measures to address Malaysia's looming deficit issues related to the current account as well as the public sector debt, said a research house.
Credit Suisse said Prime Minister Datuk Seri Najib Razak's recent victory in the Umno election will enable him to push through his reforms.
The measures likely to be announced are the goods and services tax (GST) timeline, cooling measures for the property sector, subsidy rationalisation, public projects being staggered and sin tax.
It said if the government is serious about keeping the deficits down with a clear timeline, Malaysia may be able to prevent a downgrade by rating agencies.
GST could be implemented in 2015 at a rate of four to six per cent to replace the current sales tax of five to 25 per cent and the service tax of six per cent.
"We expect retail sales to spike in 2014, but to potentially slump in the few months after GST is implemented, only to normalise eventually. Our early analysis suggests that most sectors could be negatively impacted by GST, except the telco sector."
The Singapore experience, said Credit Suisse, has shown that sectors which underperformed included consumer discretionary, real estate, real estate investment trust (REIT), healthcare, utility, financial and technology sectors.
The Singapore-based research house also expects the 2014 Budget to aim to strike a balance between achieving fiscal discipline, sustaining robust gross domestic product (GDP) growth and improving standards.
"We think Najib will announce a budget deficit target of 3.5 per cent of GDP, as part of the government's roadmap to balance the budget by 2020, and a government debt-to-GDP ratio of below 55 per cent."
It, however, warned of potential pain in the property sector. The real property gains tax (RPGT) could potentially double, as the government attempts to rein in property speculation, from the current rate of 15 per cent for the first two years and 10 per cent during the third to fifth year.
Another probability Credit Suisse expects is the loan-to-value ratios for the third house financing and beyond could be lowered to 60 per cent from 70 per cent, plus restrictions on developer interest bearing schemes.
"We think the government is merely trying to stabilise property prices and not attempting to kill the sector as this will then have a knock-on effect on the economy."
The research house expects subsidy rationalisation to be carried out gradually, with fuel and electricity prices to be raised in "small doses".
Market expectation is that higher stamp duties could be imposed for multiple properties with rates of five per cent for a third property, 7.5 per cent for the fourth property and 10 per cent for the fifth property and beyond.
"The implementation of such a policy may be difficult as the state land offices are not integrated, making it hard to track the number of properties a buyer has acquired across the states."
It warned that the impact from a significant hike in stamp duty could be more drastic than RPGT as it would affect all property transactions.
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