An election-centric budget. With the 13^th General Election (GE) most likely to be held within the next seven months or less it is expected to focus on winning public support by helping lower income earners and small businesses cope with the rising cost of living and global economic uncertainties.

 Reality bites. Cognizant that the challenges faced by the economy this year may continue in 2013, the government would continue to prime up domestic demand to stimulate growth. More importantly managing growth expectation is crucial to uphold confidence especially ahead of the GE. But  too high a growth projection may deem to be unrealistic in an environment of economic uncertainty. Hence, we expect the government to pare down its ideal 6.0% or higher GDP growth target. 

 Managing fiscal balance. The need to adopt fiscal prudence would put a damper on development spending due to potentially lower revenues from key economic sectors like oil & gas, plantation and electronics manufacturing. Hence,  we expect the proposed allocation for development expenditure to  be capped at RM50b for 2013 from an estimated RM52b this year.Nonetheless, the amount remains large as the Government is expected to announce the remaining projects under the Economic Transformation Programme (ETP); MRT, Wawasan Tower, KL-SG high speed train, etc.

 Easing fiscal pressure. Efforts to cap development spending, savings from on-going subsidy rationalization, a more effective tax collection, and prudent debt management may ease Malaysia's fiscal strain going forward. Hence, the fiscal deficit is projected to narrow to about 4.3% of GDP in 2013 from an estimated 4.9% in 2012. 

 Managing rising cost of living. A second cash handout to poor households is expected to be among the budget goodies to win the hearts of voters ahead of the GE. While we believe there is still room to cut individual income tax the next best option is to raise personal tax relief. In view of rising property prices focus would be on home affordability for low income earners. To reign on rising property prices, a hike on the RPGT is a  possibility. The Government may also introduce a national health insurance scheme to help low income earners afford comprehensive medical care.

 Squeezing the sinners. As the avenue for higher tax collection to fill up its coffers appears to be limited and the need to win support from conservative voters, the Government may extract additional revenue from the 'sin' sectors. The brewers have a higher probability to be the prime target compared to tobacco or gaming as they have been spared for the past seven years.

 Reduce car prices = 'disposable income = 'public  support. Though we do not think the Government would budge  on its National Automotive Policy a move to reduce car prices starting with a gradual reduction of its tariff and tax structure would be a major plus point to win votes. Once the GST is implemented reduction in taxes are more feasible and cheaper cars a reality. Full exemption of import and excise duty on hybrid or full electric cars may likely be extended.

Source: Kenanga