Issue 10 / 12 Oct 2016

Budget 2017 has been announced by our Prime Minister, Datuk

Seri Najib Tun Razak on October 21, 2016 with the theme of

“Ensuring Unity and Economic Growth, Inclusive Prudent

Spending, Wellbeing of The Rakyat”.

Budget 2017 allocates RM260.8 billion, an increase of 3.4% from

the 2016 Budget (after recalibration). Of the amount, 82% or

RM214.8 billion is for operations expenditure (OE) with balance of

RM46.0 billion for development expenditure (DE)

Under OE, emolument makes RM77.4 billion and RM103.9 billion

is allocated for fixed charges and grants. Under DE, the economic

sector will receive the lion share with RM25.9 billion followed by

the social sector at RM12.2 billion.

Malaysian economy at a glance in 2017

The Malaysian economy is expected to grow between 4.0% to

4.5% in 2016 and between 4.0% to 5.0% in 2017.

The Government is targeting to achieve a fiscal deficit of 3.0%

of GDP in 2017 compared with the expected 3.1% in 2016.

Malaysia’s PPP per capita has increased from USD23,100 in

2012 to USD26,891 in 2015.

Global economy is projected to slow to 3.1% in 2016 before re-

covering to 3.4% in 2017.

Summary of Economic Performance: Malaysia vs. Selected

ASEAN countries (%)

Key Budget Highlights

The 2017 Budget is crafted amid a slowing global economy

and low oil prices which will impact Government’s revenue

streams. Limited by revenue, the 2017 Budget juggles be-

tween a rakyat centric budget for social inclusiveness and

providing for economic growth.

In the context of Iskandar Malaysia, the 2017 Budget will

bring about several positive effects on the economy and

rakyat especially in the areas of social inclusiveness through

affordable housing, programmes for the B40 and marginal-

ized communities, developing talent and enhancing SMEs

and extension of incentives for

selected economic sectors.

Malaysia Budget 2017 (cont.)

Small Medium Enterprises (SMEs)

With the opening of the ASEAN markets under the ASEAN

Economic Community (AEC), there is a need to have local

SMEs to be ready, resilient and competitive to face the chal-

lenge of an open ASEAN market, thus the initiatives below will

be able to strengthen the SMEs.

Various initiatives to bring up the SMEs include:

Development of SMEs through export promotion and ac-

cess to financing with

- RM130 million through National Export Promotion Funds

- RM75 million under the SME Master Plan

Reduction of income tax rate specifically for SMEs from

19% to 18% on the first RM500,000 of chargeable income

New scheme to encourage companies including SMEs to

increase its income (or revenue) with reduction in income

tax based on the percentage of increase in income

Extension of double deduction until 31 Dec 2020 on ex-

penses incurred

under the Local

Vendor Develop-

ment Programme.

Home Ownership

The Government remained committed to address issues of

home ownership especially amongst the lower income groups

(B40), the marginalized, youth and young families through

measures to increase supply of affordable housing.

The announcement to build 10,000 houses in urban areas for

rental to youths and young graduates is very much similar to

our Rumah Iskandar Malaysia rental scheme and our proposed

“Rent first then buy’ proposal. However, the number of houses

for rental is not sufficient compared to the number of youths

and the demand for such housing.

We hope that more rental housing can be built in Iskandar Ma-

laysia taking our Rumah Iskandar Malaysia model to cater to

the rising urbanization especially for the transient and new

workers moving into Iskandar Malaysia in response to fast eco-

nomic growth.

We also look forward to more Government land at strategic

urban locations including Waqaf land being made available for

Perumahan Rakyat 1Malaysia (PR1MA) and similar affordable

homes for new home buyers.

SMEs make up the backbone of the economy providing up to

65.5% of the workforce and contribute over one third of Malay-

sia’s GDP. From the usual incentives and allocation to im-

prove access to financing, technology, human capital, there is

a notable push for SMEs to embrace technology through e-

commerce and export promotion.

These measures can enable SMEs to ‘break’ into the wider

ASEAN market and thereafter, the global market. SMEs have

the most to gain as well as the most to lose if they do not

adopt higher technology and improve productivity to compete

regionally and globally.

Of all the ASEAN countries, Malaysia has the most potential to

leverage on the wider AEC market given our long history of

industrialization with foreign multinational corporations and our

stable and resilient economy since 1960s.

Malaysia Budget 2017 (cont.)

Development Talent and Education

There is continued focus to increase Technical and Vocational

Education Training (TVET) capacity and capability to develop

the skills for industries and enhancing industry collaboration

between TVETs and the industries with allocation of RM4.6

billion.

Transforming 9 Teachers Training Colleges into Polytech-

nics & Vocational Colleges (RM400 million)

RM270 million to upgrade teaching equipment in TVETs

RM360 million allocation to Skills Development Fund Cor-

poration.

Extend the double tax deduction for Structured Internship

Programme until Year of Assessment 2019 for students

pursuing degree, diploma as well as Level 3 and above

under TVET programmes

Extend the 1Malaysia Training Scheme (SL1M) for 20,000

graduates in 2017 (2016:15,000 graduates)

Higher Education and Scholarships

Allocation of RM7.4 billion for 20 public universities of

which RM1.4 billion is allocated to four university hospi-

tals, RM300 million for empowerment of the five research

universities and RM100 million to foster research culture

and increase publications

Scholarships

RM4.3 billion will be allocated with

- RM2 biliion through MARA

- RM1.6 billion through JPA

- RM250 million through Ministry of Higher Education

- RM208 million through Ministry of Health

- RM194 million through Ministry of Education

These initiatives will help to enhance and optimise the talent

supply in Iskandar Malaysia especially in skilled sectors. Bet-

ter industry collaboration provides the industry with the ‘right

skilled’ talent to meet the demand of high productivity and new

technology.

Together with IRDA’s own programmes such as the Iskandar

Malaysia Professional Fund for Skill Development and the

Iskandar Malaysia Employment Grant, we hope to expand the

talent pool for existing and new industries.

We are positive on the allocation for scholarships through MA-

RA and JPA which can help to bring more students to study in

the public and private universities/colleges in Iskandar Malay-

sia. Public scholarships together with private scholarships can

help grow the student enrolment especially in the private uni-

versities towards a sustainable private education sector.

We hope that more private companies can come forward to

participate in collaborating with the public and private universi-

ties as well as the TEVTs in Iskandar Malaysia so that we can

develop a robust talent eco-system.

Infrastructure and Socioeconomic Development

Infrastructure and Socioeconomic Development

RM2.1 billion allocation for five economic corridors. While

there is no specifics on how much will be allocated to each

Corridor, we are confident that the fair allocation to Iskandar

Malaysia will go to the development of our identified infrastruc-

ture projects including the Bus Rapid Transit and our social

inclusiveness programmes.

The delay in delivering an efficient and effective public trans-

portation system will have huge impact on Iskandar Malaysia

from perspective of sustainable and livable city and quality of

life especially economic growth, social inclusion and environ-

mental savings.

The 2017 Budget also announced some rakyat centric pro-

jects especially those which relate to water supply

Initiative to address water supply issues including States

Water Supply Plan and establishing Water Supply Fund

(RM665 million and RM500 million respectively)

Implement flood mitigation projects (RM495 million)

Implement People-Friendly Projects (RM800 million)

Recognising the urgent problem to address water issues in

Johor, we hope that such water related projects can be imple-

mented soonest in Iskandar Malaysia.

Malaysia Budget 2017 (cont.)

Editorial Economics & Investment Iskandar Regional Development Authority Low Mei Leong meileong@irda.com.my Arif Kasmuri arif.kasmuri@irda.com.my Articles are adapted from public documents. Comments are personal views of authors and professional advice should be sought when mak-

While there is no reduction in personal tax, the introduction of

the lifestyle tax relief of up to RM2,500 may be welcomed as it

has wider scope for personal expenses including computer,

subscription of newspapers, internet etc. This new relief will

replace the previous reliefs for purchase of books (RM1,000),

purchase of sports equipment (RM300) and purchase of per-

sonal computer (RM3,000).

The announcement of higher speed with same price and with

subsequent price cut will be a great move towards a digital

economy. This augurs well with the Datacenter Park project

and smart city initiatives.

Tourism

Tourism

Government will continue to promote and improve tourism

facilities with:

Allocation of RM400 million for clean air and ecotourism

initiatives;

Extension of tax incentive for new 4 and 5 star hotels to

31 Dec 2018 and

Increase tax deduction from RM500,000 to RM700,000 to

encourage sponsorship of local and foreign arts, culture

and heritage programmes

Tourism is a key economic driver for Iskandar Malaysia and

recognized under Big Move 3 Destination Iskandar Malaysia

under our enhanced Comprehensive Development Plan

(CDPii).

The above measures will enhance our existing initiatives to

promote ecotourism within the three RAMSAR sites and the

larger Iskandar Malaysia.

The extension of the tax incentive for new 4 and 5 star hotels

will definitely boost investments in the hospitality sector. In

the pipeline are several hotels in Johor Bahru City Centre,

Gerbang Nusajaya and Iskandar Puteri.

The increased tax deduction for sponsorship will be a boost

to our annual Johor Arts Festival as well as can attract more

world class events to Iskandar Malaysia towards a better life-

style living. This can tie in together with new tourism products

such as the FASTrack Iskandar Malaysia project and new

convention centre and hotels at Gerbang Nusajaya.

There are ‘creative’ initiatives to encourage

entrepreneurship in the industry which compris-

es mainly of SMEs and individuals. There is allocation of

RM200 million available for startups under the Working Capital

Guarantee Scheme (WCGS) Fund and new work pass catego-

ry under Foreign

Knowledge Tech Entrepre-

neurs to bring in more tal-

ent in the creative sector. It

is unclear how the alloca-

tion of RM80 million for

Film in Malaysia Incentive,

Arts and Culture Revitali-

sation agenda and FINAS Content and Creation Hub in Sabah

and Sarawak will be allocated among the three projects.

Creative