GST ‘important fiscal reform’, says economist

October 27, 2013

While the Budget2014 attempts to address the housing sector in Kuala Lumpur by lifting the RPGT rates, it is left to be seen if these measures will cool down market, notes a Singapore economist.

SINGAPORE: The policies outlined in Budget 2014 are steps in the right direction and should ease the concerns of credit rating agencies over Malaysia’s public finances, said Kostas Panagiotou, Consulting Economist, IMA Asia.

“The smaller projected budget deficit of 3.5% domestic product (GDP) from 4% in 2013, the abolition of sugar subsidy and the long-overdue introduction of the goods and services tax (GST) go some way in addressing these concerns,” he said when asked to share his views on Budget 2014 tabled by Prime Minister Najib Tun Razak Friday.

Panagiotou pointed the self-imposed 55% of GDP limit on public debt and the stated aim of a balanced budget by 2020 were useful signposts for monitoring the government’s fiscal performance.

He said the GST is a particularly important fiscal reform, as it will broaden the government’s revenue base away from its over dependence on oil and gas-derived revenues.

“The budget also includes appropriately offsetting measures for middle-and low-income households who may be hurt by the introduction of the GST.

“The budget tries to address the bubbly housing market in Kuala Lumpur and other Malaysian cities by lifting the real property gains tax rates, and increasing the supply of low-cost housing for low-income families,” he said, adding it remained to be seen if these measures would cool down the housing market.

Panagiotou noted that most Asian capital cities has been experiencing relentless increase in house prices over the last few years.

He said these have been fuelled by abnormally monetary conditions worldwide and abundant global liquidity.

“Hong Kong and Singapore authorities had a hard time trying to curb their respective property bubbles with a series of restrictive measures.

“Their home prices remain at record high levels, but housing transactions have definitely come down,” he said.

Panagiotou said the the 2014 Budget would probably result in slower domestic spending, which was timely, given the booming domestic conditions prevailing in the period leading to the May 2013 General Elections.

Hopefully, he said stronger global demand for Malaysia’s exports would partly offset the impact of weaker domestic spending on GDP growth in 2014.

-Bernama