KUALA LUMPUR: Total government expenditure for 2020 is expected to be higher at RM295.1 billion to support the economy with RM240.1 billion or 81 percent for operating expenditure (opex), while the remainder amounting to RM55 billion for development expenditure.
In a research note, RHB Investment Bank Bhd said although the total budget amount should be 6.2 percent lower than the 2019’s expenditure, it is, however, 6.3 per cent higher after excluding the one-off RM37 billion in tax refunds allocated last year.
It said opex could see a higher allocation of 7.7 percent in 2020, excluding the one-off items last year, while development expenditure will grow slightly by 0.5 percent under a normal operating environment.
On civil servants’ salaries and emoluments, the research house said it would take the lion’s share of opex at 26.1 percent of the budget, a modest growth of five per cent to RM86.1 billion in 2020, after taking into account some increments and bonuses for civil servants.
The pensions and gratuities’ expenditure component would also continue growing to the tune of six percent to RM28 billion in 2020.
“Government’s frozen of civil service recruitment since 2015 had taken a toll on some segments of the public sector, especially in security and healthcare, making it hard to keep up with the growing demand for these services.
“Therefore, the government may be looking at lifting the freeze on recruitment in these areas, which should result in higher emoluments in 2020,” it said.
RHB noted that supplies and services might continue to be slashed further in 2020, after a 17.6 percent cut this year, as the government continues to practice an open tender system for all public procurement.
On the other hand, it said subsidies and social assistance would likely be increased in 2020, as the government is determined to narrow the income gap and ease the rising cost of living for the B40 household group.
On development expenditure, under normal circumstances, RHB said the allocation is believed to be focused on the economic and social sectors, with the transport and trade and industry receiving a higher share under the economic sector compared to 2019.
Meanwhile, the education, health, and housing sectors will likely receive an increase in funding under the social sector, it said, adding that these would likely come at the expense of lower allocations for the defence and security sector and for the purpose of general administration.
“We think the 2020 Budget will likely include a contingency plan to counter the effects of a slowdown from the US-China trade war, a so-called mini fiscal stimulus package that could amount to RM3 billion or 0.2 percent of gross domestic product (GDP) and will likely be in the form of higher development expenditure.
“We think the corporate income tax rates are unlikely to be lowered under the contingency measures to counter the impact of the trade war on global trade. Malaysia’s corporate income tax rate currently stands at 24 percent for companies and has remained at this rate since 2014,” it said.
RHB said with the Malaysian economy facing a possible slowdown next year amid rising trade protectionism and frictions, it would become a major challenge for the government to continue consolidating its finances.
“The slower economic growth could weigh on corporate and income tax collections, putting 2020’s fiscal target of three per cent of GDP under pressure of being derailed.
“In our view, the government is likely to look into implementing a more expansionary fiscal policy and withhold from introducing new taxes for the upcoming budget,” it said.
RHB explained that the government had indicated that it is unlikely to introduce new tax measures for the 2020 Budget after implementing a slew of new taxes such as gaming, sugar, digital and real property gains during the previous budget.
However, it said given that last year’s fiscal budget received a one-off RM30 billion special dividend from Petronas to pay off tax refunds amounting to RM37 billion, it is likely for this upcoming budget that revenues will be lower in the absence of a special dividend.
It was estimated that the government’s revenue will decline 6.2 percent to RM245.5 billion in 2020 versus RM261.8 billion in the previous year. That said, revenues are still higher by 5.9 percent in 2020 if the special dividend by Petronas is excluded, it added. – Bernama
