Malaysia upcoming Budget 2009

Malaysia will be tabling its upcoming Budget 2009 on 29 August 2008, which has to contend with slowing global and local economies, inflationary pressures and domestic politics. The Budget 2009 is expected to be expansionary complement the “pro-growth” monetary policy.

It is expected to be focusing on:

1) lifting consumer spending and easing people’s cost of living and financial burden;
2) lowering business costs and promoting investments;
3) accelerating implementation of projects under 9MP and regional development corridors;and
4) improving economic efficiency and competitiveness as well as social infrastructure.

The low and middle income categories are expected to be the main target group and key beneficiaries of Budget 2009, with measures including personal income tax incentives, lower EPF contributions, expansion in social safety nets and further moves by the Government to contain inflation.

Businesses and investors can expect goodies that include extension of the corporate tax rate cuts, lowering/abolition of import duties on raw materials, removal/reduction in REITs’ withholding tax, as well as allocations and incentives for areas/industries like regional development corridors, “food securities” and alternative/efficient fuel-energy and related-technology.

The Government may also chip in via higher development spending to execute the 9th Malaysia Plan and regional development corridor plans. There are also expectation on more allocations for the “basics” like public transportation, security, human resource development, education, training, housing, rural infrastructure and amenities.

We believe the market do not expect the KLCI (13x forward PE multiple) to significantly react to the Budget Proposal,as in the recent years’ experiences. It have already factored in more moderate fiscal stimulus measures as well as moderate (10-15%) duty hikes for tobacco and brewery products.