Doing more with less. With the official forecast for 2014 GDP growth at 5.5% to 6.0%, there is likelihood that the Ministry of Finance would project a slower growth for 2015. Less compelling global growth outlook and moderating domestic demand may put a damper on fiscal revenue.

GST to the rescue. Based on official estimates the GST is expected to bring in additional revenue of RM2.5b in 2015 and up to RM8.0b the subsequent year. Combined with enforcement on tax collection, we project it would help raise total fiscal revenue to RM230.0b or higher (c. +4.0%) in 2015.

Balancing act. The combination of subsidy rationalization and GST along with slowing GDP growth (denominator) may appear to help the government achieve its fiscal deficit target of 3.0% of GDP next year. However, enlarged handouts and large development spending may bring it closer to our projected 3.3%.

Much ado about subsidies. Prudent management of its operating expenditure mainly via subsidy rationalization will remain a priority. A new fuel subsidy scheme may replace the current blanket scheme targeting the deserving lower income group. If implemented it is expected to reduce the annual subsidy bill by about RM5.0b to RM7.0b.

Cushioning the impact.  Additional financial aid (extension of BR1M) to be allocated towards a wider group of lower and middle incomers. Alternatively, we would rather see distribution of food stamps to stem abuse.

Boost disposable income. Aside from the income tax reduction, we expect tax relief for personal, dependents, child, and EPF/Life Insurance to be adjusted to reflect rising cost of living.

Urban housing.  More land and funds allocation for affordable housing projects under PR1MA to further address rapid urbanization and demographics. To address property speculation, we expect further tweaks on RPGT, stamp duty and foreign ownership.

Dealing with urban congestion. More projects to build roads, providing adequate and efficient public transport and modernize public transportation system to ease traffic congestions.

Corporate tax cut. To boost competitiveness and attract investments, the Government may make an early announcement on reducing corporate tax by 1.0% for 2016.

Source: Kenanga