October 30, 2018 / 11:18 PM / 21 days ago

Factbox: Spending cuts, new taxes expected in Malaysia's 2019 budget

KUALA LUMPUR (Reuters) - Malaysia’s Finance Minister Lim Guan Eng will present the new government’s 2019 budget on Nov. 2, a little over five months since it took power following a surprise election result.

FILE PHOTO: Malaysia's Finance Minister Lim Guan Eng speaks during a news conference in Putrajaya, Malaysia May 24, 2018. REUTERS/Lai Seng Sin

Below are some items that it could feature, according to analysts’ research notes and Malaysian media reports.

BUDGET CUTS

The Malaysian Rating Corporation (MARC) expects the government to trim operating expenditure, with possible cuts in emoluments, pensions and gratuities and in debt service charges.

Prime Minister Mahathir Mohamad announced two weeks ago that the government will slash its total development budget by 15 percent to a 220 million ringgit ($52.66 million) ceiling under its five-year development plan ending in 2020.

NEW TAXES

RHB Bank expects the new government to introduce sector specific taxes that would cover e-commerce and soda or sugar consumption, and possibly carbon tax, to increase government revenue.

TAX HIKES

Several banks expect the government to raise several existing taxes - notably on gambling, tobacco and alcohol - to boost revenues.

WELFARE AID REVISION

Prime Minister Mahathir Mohamad has told local media that the government will eventually end an annual cash aid program started by his predecessor, Najib Razak. The program, which has been renamed as cost of living assistance, will be replaced with a more targeted system to keep public spending in check.

AFFORDABLE HOUSING

Analysts cited by The Edge business daily expect an affordable housing policy aimed at boosting homeownership among the country’s lowest wage earners, and easing of policies to encourage more buying to jumpstart the property market.

FUEL SUBSIDIES

The government will likely maintain a blanket fuel subsidy scheme in 2019, as it works on a more targeted scheme, according to Nomura.

WIDENING DEFICIT

UOB expects a higher budget deficit of between 3.5-4 percent of GDP in 2018, before settling at 3.0-3.5 percent next year, as the government works on settling outstanding tax refunds owed by the previous administration.

When tabling the mid-term review of the 11th Malaysia Plan two weeks ago, Mahathir said the government will not be able to meet its fiscal deficit target, and that the deficit will be at 3.0 percent by the end of the five-year plan in 2020.

HI-TECH INCENTIVES

The government will give incentives for companies to embrace automation and information technology innovations under Budget 2019, International Trade and Industry deputy Minister Ong Kian Ming told local media, as part of the country’s push towards digital transformation of the manufacturing sector.

($1 = 4.1780 ringgit)

Reporting by Joseph Sipalan; Editing by Simon Cameron-Moore

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