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No new taxes expected in Budget 2022, but more borrowings may be needed, says MIDF Research

KUALA LUMPUR (Oct 3): MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) believes that no new taxes would be introduced in Budget 2022 due to the lingering Covid-19 pandemic.

However, it said, the government may need to increase borrowings to finance the widening fiscal deficit, which is expected to grow to 6.5%-7.0% of Gross Domestic Product (GDP) in 2021, from the 6.0% projected earlier this year.

“We don’t think it is the right time for the government to introduce any new taxes in 2022 because there is still uncertainty surrounding the Covid-19 situation locally and globally, which could affect Malaysia’s economic growth stability.

“However, the government may need to increase borrowings to finance the (widening) fiscal deficit. A possible increase in the statutory debt ceiling to 65% of GDP, from 60% currently, will provide a greater fiscal space for the government,” its economist Abdul Mui’zz Morhalim told Bernama when asked to share MIDF Research’s Budget 2022 wish list recently.

On fiscal management, he said said the research team expects the government to keep its commitment to improve fiscal position in the medium term, as the size of fiscal deficit to GDP is expected to be reduced to between -3.5% and -3.0% by 2025 as outlined in the 12th Malaysia Plan (12MP).

“According to the pre-budget statement, the government is considering to introduce the Fiscal Responsibility Act, which we expect will promote fiscal discipline and improve the government’s procurement and debt management.

“This may include reviewing and introducing a new tax system to improve the government’s revenue generation in the future,” he said, adding that improvement in the fiscal position would be crucial to ensure the government has greater fiscal flexibility to support the economy, especially to cushion the impact from the next economic crises.
Allocations for Connectivity, Infrastructure-linked Activities

Investment-wise, Abdul Mui’zz said Budget 2022 is likely to focus on connectivity and infrastructure-linked activities; hence there would be allocations for development spending and investments to improve these two sectors.

“This can be positive to attract more (foreign) investments to Malaysia,” he said.

For digital and technology infrastructure, he said the government is expected to focus on widening the broadband coverage, increasing the speed of mobile broadband services, enhancing the 4G network and promoting the adoption of 5G technology.

In terms of transport infrastructure, Abdul Mui’zz noted that as a list of highway and railway projects were mentioned in the 12MP, MIDF Research expects that would also be featured in Budget 2022.

“In addition, the government also indicated plans to develop a more efficient domestic logistics sector,” he said.

Among the projects mentioned in the 12MP are the Klang Valley Double Tracking (KVDT), East Coast Railway Link, Pan Borneo Highway, West Coast Expressway and Central Spine Road

Overall, Abdul Mui’zz said, MIDF Research expects the investment promotion to be guided by the National Investment Aspirations (NIA) policy that focuses on attracting quality investments that will create more high-paying jobs in Malaysia.

“We believe that the continued investments in infrastructure will be initiatives that will revive growth in the economy, as increased activities in the construction sector will have positive spillover effects to other sectors in the economy,” he said.

Abdul Mui’zz did not rule out the government considering an increase in the allocation for healthcare and the Covid-19 Fund for next year, as the waning effect of the existing vaccines may require additional jabs and there is still a chance of resurgence of Covid-19 cases with the emergence of new variants of the coronavirus.
Financial Assistance for B40 to be Continued

To assist those who have been hit hard by the pandemic, he said, the research team believes Budget 2022 would continue to offer financial assistance for the less privileged, especially the bottom 40% income (B40) group, as well as those who have lost their jobs and may have even fallen below the poverty line.

For the business community, Abdul Mui’zz said MIDF Research foresees that more support in terms of grants, financing schemes and training programmes would be provided in the upcoming budget, especially for the micro, small and medium enterprises.

The fiscal assistance is expected to promote higher domestic spending by consumers and business enterprises, he said.

Meanwhile, he noted that measures to improve the labour market may be included in Budget 2022, as the recovery in the job market has been sluggish and was also impacted by the full lockdown from June 1-14, 2021.

“Possible measures include incentives for hiring and training, extension of wage subsidy to protect jobs, and support for the gig economy and informal employment,” he said.

Budget 2022 will be tabled in Parliament on Oct 29, 2021.

http://www.theedgemarkets.com/article/no-new-taxes-expected-budget-2022-more-borrowings-may-be-needed-says-midf-research

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