KUALA LUMPUR, Sept 17 -- Budget 2020 will likely include a contingency plan to counter the slowdown from the US-China trade war.

The “so-called” mini fiscal stimulus package could amount to RM3 billion or 0.2 per cent of gross domestic product (GDP), while likely in the form of higher development expenditure, said RHB Research.

The research firm opined that the measure would lift the deficit target to 3.2 per cent of GDP from three per cent.

It said in a note today, the possible measures in the contingency plan, would include an extension of the reinvestment allowance, grants and financing guarantees for small and medium enterprises, higher development expenditure to boost construction activity and higher social spending to aid the B40 group.

“We believe these measures will help counter the country’s slowing private investment and weak trade activity,” it said.

The research firm reiterated that a higher development expenditure to the tune of RM3 billion is expected under the contingency plan, which will likely focus on the construction of infrastructure projects, while facilitating trade and industry to allow for trade relocation and diversification amid the trade war.

This is alongside an upgrading of existing public buildings and equipment in schools, hospitals, and universities, as well as higher social spending to aid the B40 group.

“New infrastructure projects, such as the Pan Island Link 1 (PIL1) highway and light rail transit (LRT) under the RM46 billion Penang Transport Master Plan (PTMP) may be announced in the budget.

“All these expansionary fiscal spending may raise the total gross development expenditure to RM58 billion, and combined with tax cuts and allowances, is expected to push the fiscal deficit to RM52 billion or -3.2 per cent of GDP,” RHB Research said. 

In a separate development, RHB Research said corporate income tax rates are unlikely to be lowered under the contingency measures mentioned by Finance Minister Lim Guan Eng, to counter the impact of the US-China trade war.

It said Malaysia’s corporate income tax rate currently stands at 24 per cent for companies and has remained such since 2014.

Meanwhile, the government has indicated it is unlikely to introduce new tax measures for Budget 2020 after implementing a slew of new taxes – such as gaming, sugar, digital, real property gains among others, during Budget 2019.

“This comes as the economy will likely face a tougher challenge going into 2020, with the escalation of the US-China trade war and slowing global growth environment.

“Given such challenges, Finance Minister Lim Guan Eng said Malaysia will find it challenging to meet its three per cent fiscal deficit target for 2020,” said RHB Research.

It said, as such, Malaysia will need to brace itself for the full brunt of the trade war next year.

“This is likely an indication that the government is willing to take a pause from its ongoing fiscal consolidation and allow the budget deficit to rise higher than the targeted three per cent of GDP for 2020, as stipulated in its medium-term fiscal framework 2019-2021,” it added.

-- BERNAMA