Stitch in time

28 October 2013 By Andy Mukherjee

Prime Minister Najib Razak’s budget has paved the way for a consumption tax and lower subsidies. Fiscal prudence gives foreign holders of public debt added comfort. With the Fed likely to curb money-printing, Najib is right to buy insurance against the risk of capital outflows.

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Malaysia will implement a broad-based 6 percent goods and services tax from April 1, 2015, which will replace the current sales tax, Prime Minister Najib Razak said in his annual budget speech on Oct. 25. He also announced an immediate end to sugar subsidies.
Najib said the fiscal deficit will narrow to 3 percent of GDP in 2015, from an estimated 4 percent in 2013. By 2020, the government aims to balance the budget. The government will contain its debt-to-GDP ratio within the 55 percent ceiling approved by parliament, the prime minister said.
The corporate tax rate will be cut by 1 percent to 24 percent to give a boost to Malaysia’s competitiveness. Personal income taxes will also be reduced by 1 to 3 percentage points.
The yield on 10-year Malaysian government bonds fell to 3.6 percent after the budget speech, the lowest since June 26.

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