With Malaysia’s Budget 2017 announced last week, many are still wondering and anticipating the impact of these policies put in place by the government, especially in combating the rising costs of living.
In case you missed the announcement, CompareHero.my has compiled diverse views from various experts to shed some light on what Budget 2017 really means for consumers, and whether Malaysians can look forward to enjoying greater benefits from these new policies.
A people-centric budget with disposable income the main focus for B40 households
Labelled by many as a people-centric budget, Standard Chartered Malaysia’s managing director and CEO - Mahendra Gursahani believes that measures in Budget 2017 will definitely ease burdens of the high cost of living.
“Budget 2017 has indeed proven to be a people-centric budget aimed at increasing the rakyat’s disposable income. Measures tailored for various groups such as B40, M40, fresh graduates and first-time homebuyers would certainly ease the burden of high cost of living amidst the slowing global economy, ” – Mahendra Gursahani
Striking the same note with Mahendra, Maybank Investment Bank Bhd analysts - Suhaimi Ilias and team also believe that Budget 2017 maintains the government focus in addressing inclusive growth and equality issues by focusing on the well-being of the Bottom 40% (B40) and Middle 40% (M40) households.
“Budget 2017 attends to the pressing matter of affordable housing, and provides more money for education, training, affirmative programmes and micro-credit schemes to support upward socio-economic mobility and entrepreneurship, as well as for healthcare and basic infrastructure.
Allocations for BR1M in 2017 is raised to RM6.8 bill, which will benefit 7 million recipients as the amounts for the various categories of eligible recipients are raised by between RM50 and RM200. BR1M positively affected real private consumption (55% of GDP) over the past 5 years. Without BR1M, it is estimated that consumer spending growth on average would have been 0.3 percentage point slower than the actual growth reported for the period 2012 – 1H 2016.” - Maybank Investment Bank.
Growing concern that M40 households have been left out of the Budget 2017
However, Federation of Malaysian Consumers Association (FOMCA) chief operating officer, Siti Rahayu Zakaria said, “Budget 2017 is more focused for B40, and not much can be enjoyed for the M40 group. Allocation for M40 can be improved in terms of subsidy and healthcare.”
However, on the plus side, Mahendra Gursahani believes the Budget 2017 placed the financial system’s direct and facilitative role in encouraging Malaysian youth to make long-term investments through the Private Retirement Scheme. “Such measures help them kick start their retirement savings at a young age”, he adds.
Missing budget allocations for disaster relief funds
Siti Rahayu also pointed out that the government did not allocate funds to states facing natural disasters such as floods and earthquakes. To recap, Northern and Eastern states of Kelantan, Terengganu, Pahang, Perak and Perlis were hit by flash floods including some areas in Sabah back in December 2014.
“This year’s budget did not provide allocation for the construction of new Klinik Rakyat 1Malaysia. FOMCA hopes that the number of Klinik Rakyat 1Malaysia will be extended because it can help reduce the cost of living especially for medical expenses of Malaysians.” – Siti Rahayu.
Is the Government’s incentive for B40 households to become Uber drivers really enough?
The government announced that it will offer a grant of RM5,000 to qualified taxi drivers to purchase new taxis. This is expected to benefit 12,000 drivers who have ended their leasing contract with taxi companies. Furthermore, the government will be offering ride-sharing drivers a rebate of RM4,000 to purchase a Proton Iriz given that they are classified under the B40 group and do not own a car.
Despite so, TA Securities Sdn Bhd analyst, Abel Goon says “the impact (of the RM4,000 rebate) is negligible to the automotive sector as our sensitivity analysis suggests the decrease in monthly repayments only amount to RM34-RM77.”
“This translates to approximately 1%-3% of after-tax income for the B40 segment. Our estimates are underpinned by 90% loan-to-value, base financing rate of 3.00%, loan tenures of 5/7/9 years, and the new Proton Saga as a taxi substitute.
Furthermore, assuming all 12,000 qualified taxi drivers take up the RM5,000 rebate, the total increase in vehicle sales merely amount to 2.0% of total industry volume (TIV). We understand that there are an estimated 2.7 million citizens classified under the B40 group.
However, given the highly specific requirements: intention to be a ride-sharing driver, and purchasing a Proton Iriz, we expect only a small fraction of the B40 population to benefit from this rebate.”- Abel stresses.
Echoing those thoughts is Kevin Neoh, MBA Licensed financial planner and Financial Planner Association Malaysia (FPAM) member:
“We should be paying attention to the B40 group and helping them find ways to increase their income (driving Uber is definitely not a good solution).
The more you borrow (hire-purchase loans) the more strain you place on your future cash flow. I hope the budget is not encouraging people to live and rely on debts but should encourage a responsible and sensible borrowing mindset instead”, adds Kevin.
Affordable housing issues are here to stay
With the introduction of the new property financing scheme (PR1MA) and housing loan qualification for civil servants increased from RM120,000 to RM200,000, Siti Rahayu hopes that the policy to increase loan qualification and limits will be managed prudently so that civil servants will not be burdened with debt and most importantly consider their ability to repay loans.
Kevin adds that the government’s focus seems to be skewed towards the assumption that Malaysians are facing difficulties securing a mortgage loan (due to expensive house prices) instead of their low-income issue.
“Buying a house by having easier access to financing simply means people who may not really afford the mortgage may stand a chance to get it, and that increases a strain on their future cash flow too. The problem lies in people’s lack of financial planning knowledge and financial literacy, but we did not see any initiative to resolve this issue,” says Kevin.
At the same time, he is worried that the increases in stamp duty for the property above RM1 mil from 3% to 4% may not only impact the rich but also the middle-income group who stay within major city areas as well. “A landed property in Klang Valley, for example, can easily cost you more than RM1 mil,” said Kevin.
However, most experts remain positive that the continued abolishment of developer interest bearing scheme (DIBS) is a good move, as it is deemed to be one of the crucial factors for uncontrollable property inflation.
Lifestyle tax relief – is it really what we need?
The government also tabled a lifestyle tax exemption of RM2,500 for the purchase of reading materials, smartphones, computer and sports equipment combined. This also includes gym subscription, internet subscriptions, and subscription to mainstream newspapers.
While some rejoice, Kevin expressed his disappointment with this policy, taking note that the government views reading (learning) as a lifestyle choice, but not as a necessity.
Tax relief is a "tool" to encourage people to spend on something that benefits them. The fact that the lifestyle tax relief now includes book purchases is a good thing for everyone. However, buying a smartphone does not require much persuasion compared to the former.
“You don't have to encourage people to buy or change their phone. Instead, we should encourage them to invest or create more value using the same amount of money. There are so many people who have not set up a will but if there is a tax relief on writing a will, it will surely be beneficial to them,” says Kevin.
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