A comprehensive budget

HAVING dissected the 2021 Budget presented by the finance minister recently, it is clear that it is an equally comprehensive and empathetic one, with emphasis placed on both growing the economy as well as tackling the ongoing Covid-19 pandemic. The salient aspects that strike us as particularly timely in growing the economy in the coming year include:

1. A noticeable balance in the government’s approach between securing the government’s income stream and the need to safeguard the rakyat’s disposable income – not an easy task at any given time, more so given the ongoing economic malaise brought on by the pandemic.

2. The extension of Pakej Prihatin to ensure continued growth in demand, as well as tax incentives designed to enhance the rakyat’s disposable income, hence supporting consumer demand.

The two most notable incentives in this regard are clearly:

a. the lowering of the personal income tax rate by a full per cent for those in the RM50,001 to RM70,000 income bracket, and

b. those who lost their jobs as a result of the pandemic and received compensation will see an increase in personal tax exemption from RM10,000 to RM20,000, for every year of service completed.

All considered, the above measures are projected to help support the country’s domestic demand sufficiently this year for a relatively modest growth of 1.6% for the public sector, with a mild contraction of 0.7% in the private sector. Demand in 2021 meanwhile is forecast to grow at 2.0% and 7.1% for the public and private sectors, respectively.

3. Of note is the government’s continued efforts to attract investments to grow the economy, particularly in terms of incentives designed to mould the country into the region’s main economic hub, with the commensurate growth in production and employment. These include:

a. The relaxing of tax incentive requirements for Principal hubs to Dec 31, 2022,

b. Concessionary tax rates of just 10% for five years for companies that establish Global Trading Centres in the country, with a renewable period of an additional five years thereafter, and

c. A preferential tax incentive ranging from 0% to 10% for 10 years granted to manufacturers that choose to relocate and invest in new facilities in Malaysia.

4. Besides this, the budget clearly also provides for the continuity of domestic economic activities, such as manufacturing and construction. Besides the anticipated investments in public infrastructure projects, effort has been made to also increase home ownership, providing for both a larger impact and increased multiplier effect on the economy.

Such measures are anticipated to contribute to a construction sector growth of 13.9% next year, with the manufacturing sector following with a forecast 7.0%, based primarily on developing the export sector, in particular strategic industries such as healthcare.

5. Given the anticipated growth in demand and supply in the coming year, it is essential that the local populace is prepared adequately to take up the opportunities that will arise. The strategic measures taken by the government in this recent budget to increase employment opportunities are very welcome and serves as the anchor for the country’s continued economic growth.

6. The specific strategies taken to prepare the country for the coming 12th Malaysia Plan are also timely, to ensure the effective planning and execution of the 12th Malaysia Plan, when the 11th Malaysia Plan comes to an end at the end of this year.

Based on our analysis and simulations, we fully anticipate the country’s GDP to grow within the 7.0% range in the coming year.

Mazli Noor is vice-chairman of PAS Central’s economic, real estate and entrepreneur development committee.