Run-up to Budget 2014

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This Friday, Prime Minister Datuk Seri Najib Tun Razak is expected to deliver yet another budget and there have been many speculations by the public and experts on the matter.

With the recent downgrade in credit rating outlook from Stable to Negative by Fitch Ratings, major fiscal reforms are expected to be included in the Budget 2014, especially in the areas of subsidies, taxes and government’s expenditures.

As the government is under pressure to act swiftly on the matter, members of the public, financial experts and economists expect Budget 2014, scheduled on October 25, to provide clarity on fiscal policy issues and direction.

According to Affin Investment Research, the risk of a downgrade in the country's credit ratings will make it expensive for Malaysia to borrow money from abroad. A lower rating will also dampen investment flow into Malaysia's equity and bond markets, with negative perceptions of the country's deteriorating credit quality.

“The government will further cut state subsidies, broaden its tax base and manage spending ‘prudently’,” said the Prime Minister, who is also our Finance Minister, in a recent report on the Budget.

Whatever surprises Budget 2014 have in store for us, there are certain things that are well-flagged at this stage including the introduction of the Goods and Services Tax (GST), which if announced, is only expected to come into effect in 2015.

At this time, it is unclear how much consumers will each have to pay for common goods and services and whether essential items will be excluded from the tax. Our neighbour, Singapore, first implemented GST in 1994 at 3% but has increased the rate four times since then, with the latest hike in 2007 to 7%.

How this tax will affect consumers will depend on the execution of the tax restructuring and the regulations in place to ensure retailers do not overcharge.

“Everybody should do their part to ensure successful implementation of something as big as the GST. Public education must be done to increase awareness and understanding of GST. And it should be done in the simplest way to reach the masses,” said Lee Ching Wei, Co-founder and Group CEO of Malaysia’s largest financial comparison website iMoney.

Aside from GST, the real property gains tax (RPGT) is also speculated to increase from the current rate: 15% for property disposal within two years and 10% for disposal between three to five years. This is one of the efforts by the government to control the pricing of property from skyrocketing further due to widespread speculative property purchases.

Even with various on-going initiatives by the government to provide assistance for first time home buyers, many more aids are still required to accommodate not just the lower-income group, but also the middle-income group.

“Further allowances can be given to first time house buyers, such as the re-introduction of tax relief for a longer period (from the previous three years to five years), and a reduction on stamp duty would also lessen the burden of the initial outlay when buying a property,” said Mark Wang, Chief Investment Officer of AIA Malaysia, when asked about other initiatives that first time home buyers would like included in the upcoming Budget.

Wang also believes increasing the number of housing projects, as well as the income limit under the My First Home Scheme and 1Malaysia People's Housing Programme (PR1MA) would be most welcome for low to middle income earners

Other than offering assistance in purchasing their first home, much talk in recent weeks has also centred on increasing government aids for the lower income group, such as the 1Malaysia People's Aid (BR1M) and other handouts.

The government plans to distribute BR1M twice in 2014, said Finance Minister II Datuk Seri Ahmad Husni Hanadzlah in a recent public announcement. The amount (which is said to be higher than the current RM500 per household) and the quantum will be announced during the tabling of Budget 2014 by the Prime Minister.

“Handouts will definitely be a huge part of the upcoming budget. However, it is just a short-term plan to cushion some of the price hikes and the increasing cost of living. Budgets will most probably be allocated for long-term plans, such as talent development to increase job opportunities for Malaysians,” Lee further explained.

Other than providing job opportunities, efforts to elevate local entrepreneurs and small and medium enterprises (SMEs) can also alleviate some of Malaysians’ financial burden. Over RM500 million were allocated in Budget 2013 for entrepreneurs and SMEs. Will we see more efforts from the government to help this group of people?

“I would like to see an allocation in an entrepreneurs fund to assist young Malaysian entrepreneurs of all races to achieve their aspiration in business and drive them towards success,” suggested Amy Seok, principal consultant of Money Compass Magazine, when asked for her wish for Budget 2014.

“The government can also be more supportive of entrepreneurs by providing tax incentive or grants, especially for those involved in corporate social responsibility (CSR), social enterprise, media, and publishing businesses that contribute to nation building,” Seok added, using Money Compass Magazine as an example of such business.

Whether these wishes will be realised or pushed aside, it is undeniable that major changes are anticipated to propel Malaysia to become a high-income nation by 2020. The best way to navigate through the increasing cost of living and in trying to make the most out our money, is most likely through financial education. Comparing prices and rates on banking products can make a huge difference in making intelligent money decisions. With online sites like iMoney.my, it is much easier to obtain latest information and news on personal finance and avoid making bad financial decisions.

Lee Ching Wei is the Co-founder and Group CEO of www.iMoney.my, a leading financial comparison site in Malaysia. Prior to iMoney, he was an investment consultant. He is also a CFA & CAIA Charterholder, two prestigious professional qualifications in the finance field.

Amy Seok is the Principal Consultant and Founder of Money Compass, a publication aims to create awareness and educate Malaysians on financial planning.

Mark Wang is the Head of Investment at AIA Malaysia. AIA Malaysia is one of Malaysia's leading life insurance companies. AIA also offers fixed rate home loans that protect customers against future interest rate fluctuations.

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