Budget 2019 Malaysia for the Malaysian Millenials

Last Friday, 2 November 2018, marks the first national Budget by the new government ever since the independence of Malaysia. As much as this is a historic and monumental event it is, it is also a day which would affect 32 million people coupled with a balancing act to solve the growing national debt hence many eyes and pressure are on this Budget. With the Budget being revealed, there were many mixed reactions as some were surprised with certain changes being made whilst others were disappointed.

This is an overview of some points in the Budget 2019 that may or may not affect you as a Malaysian Millennials.

  1. RM100 unlimited travel pass

There was a study done by Cent-GPS on a study of the MRT which highlights the problems about public transport namely that the locations were not strategic, cost relating to travel using the MRT is too high which discourages consumers from switching from their private cars as a mode of transport.

I strongly welcome this initiative by the government to encourage people to take the public transport more and ease the traffic on the roads. The current status quo is that the opportunity cost of driving instead of commuting to work is not significant enough for people to abandon their cars and squeeze themselves into the tight train carriage for an hour’s ride. With this, the citizens can have more disposable income to spend with approximate RM200 savings on transportation and also it would lighten the traffic on the road.

However, the government would need to increase the number of trains available during peak time as from personal experience, it is currently insufficient to meet demand. To meet the expected surge in demand next year, more trains is urgently necessary to have the desired effect or any positive effect at all.

Note: there are several reports where the Transport Ministry intends to team up with Grab to solve the “last mile” problem but nothing solid has been given so far.

2. PTPTN

PTPTN has its own fair share of criticism by the nation especially on the topic of loan default. According to NST, only half of loan PTPTN are repaying their loans and the total outstanding debt is around RM39 billion. The government has time and time again tried to incentivise PTPTN repayment but the needle has not shifted significantly.

Finance Minister YB Tuan Lim Guan Eng had announced that the deferment of the PTPTN loans until borrowers earn RM4000 and above is too much of a strain on the country’s financial burden and as such, a scheduled deduction of 2% – 15% would go towards repayment of their debt when they earn more than RM1000.

Additionally, no more discounts staring 2019 will be given to PTPTN borrowers. However, discounts will be given to B40 households who have successfully obtained first class honours as compared from the previous government’s regime where students were exempted from repaying their PTPTN loans upon earning first-class honours for their bachelor’s degree, upon meeting certain conditions.

3. First House Buyers

The government endeavours to encourage Malaysians to purchase their first home and to curb the problem of overhang in residential properties and thus several initiatives have been launched as a means of solution.

First, there is a 100% stamp duty exemption for properties up to RM300k on the instrument of transfer and loan agreement. For properties above RM300k but below RM500k*, the 100% stamp duty exemption is limited to the first RM300k of home price on the instrument of transfer and loan agreement. For properties above RM300k but below RM1mil, the 100% stamp duty exemption will only apply on the instrument of transfer.

* Purchase of first residential home from housing developers.

Additionally, the government has launched the FundMyHome, the peer-to-peer (P2) home financing exchange platforms. This is a crowdfunding platform which serves as an alternative source of financing for first-time home buyers. Under this scheme, the purchaser will be able to acquire a property whilst paying only 20% of the price of the property and the remaining 80% will be borne by potential investors, mainly financial institutions. In this case, the purchaser need not source for a loan from the beginning since it is understandably difficult should the purchaser lack the financial capabilities to do obtain one. However, after 5 years, the property is either sold off and the proceeds are divided according to a prescribed ratio or the purchaser can then obtain a loan to service the remaining amount. (There is an interesting discussion on this circulating social media here where it highlights problems about this system.)

4. Sugar Tax

We Malaysians consume large amounts of sugar daily without most of us even knowing. From the morning’s Teh Tarik to break time’s kueh to dessert’s cendol, it’s no wonder that in 2017, Malaysia was dubbed most obese in the region. It is reported that one in two Malaysians is overweight or obese.

Starting April 2019, a new excise tax known as “sugar tax” of RM0.40 per litre will be imposed on sugar-sweetened beverages. This will be on beverages that contain sugar exceeding 5g per 100ml, as well as juices that contain more than 12g per 100 ml.

My only concern about this is inflation and that demand for sugar-sweetened beverages in Malaysia is very inelastic but we’ll see how this plays out.

5. Digital Tax

I’ve talked about Digital Tax in a brief in a blog post earlier here. Basically, it’s a tax on services provided online which escapes most countries’ taxation regulatory framework. To ensure the competitive level of local players, governments across the globe have trying to tax this intangible economy that exists in the clouds.

It is proposed that the current Sales and Service Tax regime would be extended to include imported services such as digital advertising (Facebook advertisement and Google advertising), online streaming platforms (Netflix and Spotify) and downloaded software. For consumers, service tax imported by individuals will be effective 1.01.2020 whilst it is a year earlier for Malaysian businesses.

6. Minimum wage

Let’s just say that if you’ve graduated from a tertiary education and is currently earning more than RM3000, congratulations! You’re already well above the median of Malaysian employees which was last recorded at RM2160 in May 2018. That means, there are plenty of those who are earning well below RM2160 and at the national minimum wage.

In the Budget 2019, the government proposes to increase the national minimum wage to be raised to RM1,100 nationwide effective 1 Jan 2019. This is an increase of 10% from the previous administration. This is a measure by the government to reduce the income gap which has doubled for the B40s and T20s between 1995 and 2016. It was reported by The Star that households earning less than RM2000 will only have RM67 in savings after paying for daily expenses just to get by.

In my humble opinion, this is a good step to reduce income inequality by increasing B40s income at a rate faster than income level increase, I’m slightly sceptical about the fact that the amount applies nationwide which ignores the different cost of livings and also the fact that this will contribute to more inflation for 2019.

7. Personal Tax relief

Starting from the Year of Assessment 2019, Budget 2019 proposes that the combined tax relief for EPF contributions and life insurance premium/ Takaful contributions would be increased by RM1,000 to RM7000. However, the relief is now broken down and separated into 2 distinct amounts whereby a maximum of RM4,000 is given for EPF and RM3,000 for Takaful & Life insurance premiums. This would result in a lower tax relief where the individual does not make any Takaful/ Life insurance premium.

 

Personal comments:

YB Lim Guan Eng first described the Budget 2019 as one being of “sacrifice” and it does appear to be so to a certain extent. There are some tax hikes, for example, the Real Property Gains Tax, Digital Tax and Sugar Tax but overall, the Budget seems promising but hopefully, we will see a better Debt-GDP ratio next year. The only concern I have is that it may have a snowball effect which results in a high inflation next year due to rising business cost.

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