PETALING JAYA: In the run-up to Budget Day on Sept 28, sectors such as consumer, construction, and property are likely to attract interest amidst expectations that the government would announce measures to alleviate the rising cost of living especially among the youth and the low and middle income earners.

According to Dr Nazri Khan, head of retail research of Affin Investment Bank, the government will want to boost domestic consumption to drive domestic economic growth as external demand continues to be weak.

“I don’t think there will be any consumer taxes introduced this round. There should be no hike in excise duties for both cigarettes and breweries, and most likely there will be no RPGT [real property gains tax] hike this time around,” he said.

The previous hike on the excise duty in the tobacco industry was in 2009 when the government imposed a one sen excise duty hike per stick on cigarettes. Breweries were last penalised with a hike in excise duty in 2005.

Tobacco companies such as British American Tobacco (M) Bhd and Phillip Morris (M) Sdn Bhd have reiterated their stance that any hike in excise duty on cigarettes will only benefit the smugglers, as consumers will shift to lower end and contraband products.

Visitors throng a property exhibition. Nazri says the government will want to ensure that it will be easier for younger people to own a house, so there will be more public and affordable housing schemes being built.

However, RHB Research believes there is a high likelihood of an excise duty hike due to the government’s aim of cutting down the number of smokers, given that there was no excise duty hike last year. But it expects the malt liquor market (MLM) to be spared from excise duty hike again this year.

“We believe the quantum of increase for the excise duty would be fairly low at 0.5 sen to one sen per stick, as opposed to the steep three sen per stick hike imposed in 2010,” it said in a report.

Nazri dismissed the possibility of the government introducing the goods and services tax (GST) next year, as it will not want to risk losing support from the lower income groups due to the impending general election.

However, RAM Rating Services Sdn Bhd chief economist Dr Yeah Kim Leng said the government needed to expand its revenue sources to rein in its budget deficits, as well as providing larger fiscal space to ensure sustainable economic growth.

“Had we implemented the GST before, we will have the room to cut corporate and individual income tax. This is something we do not rule out because with lower corporate and individual income tax, it will make Malaysia a more attractive investment destination,” he said.

Nazri said he expected the incumbent government to focus on the well being of the younger demographics and the rural population in the budget, which will be the last budget before the general election.

“The current government will want to ensure that it will be easier for younger people to own a house, so there will be more public and affordable housing schemes being built, and also a possibility of another round of half-month bonus for civil servants,” he said.

He said second-tier property stocks such as Hua Yang Bhd and Mah Sing Group Bhd may benefit from the focus on encouraging younger generation to own their first house.

RHB Research shares the view that civil servants may receive a bonus. “As civil servants’ propensity to spend is higher, as they are not concerned about losing jobs, they are likely to spend when there is extra money in the pockets,” it said in the report.

Measures such as the civil servants’ salary adjustment and bonus, as well as the potential second round of the 1Malaysia People’s Aid (BR1M), could help raise disposable income and stimulate the already resilient consumer spending in the country further, the research outfit commented.

On the development expenditure side, Yeah said the government should be cautious in infrastructure spending as it has to take into account the absorption capacity of the country’s workforce and material supply.

He said an amount equivalent to 5% of the country’s GDP was suitable for development expenditure to meet the country’s infrastructure needs.

“We should spread out infrastructure development carefully [over a period of years] so that it does not create manpower and material shortages. Currently our GDP is about RM881 billion, so about RM44 billion to RM60 billion [should be the amount],” he said.

According to RHB Research Institute, the massive public infrastructure spending led by the Klang Valley MRT project, and other mega property projects under the Economic Transformation Programme (ETP) will continue to buoy the construction sector as a whole.

The massive spending on infrastructure and big ticket property development under the ETP will cause supply of contracting services to tighten and reduce competition as “plates of more players will become fuller”.

As more players will be awarded with contracts, fewer construction outfits will be left without jobs. Thus, according to RHB Research, this situation will result in companies having less inclination to scarify their margins for more contracts, a phenomenon which persisted until only recently.

“We hold the view that given the size and scale of some of these proposed projects, if they do get off the ground, irrespective of who are in the driver’s seats, the positive impact to the sector as a whole will be tremendous, both in terms of the sub-contracting jobs they generate and reduced competition,” the research firm noted.

Companies like MMC Corp Bhd, Gamuda Bhd, IJM Corp Bhd, Ahmad Zaki Resources Bhd and Sunway Bhd are among the big names that have benefited from the MRT jobs. RHB Research suggests that more players will get a share of the cake as the government awards more construction contracts.

On the telecommunication sector, OSK Research analyst Jeffrey Tan is of the opinion that the budget will not be an event for the telco companies. This is because many of the direct incentives are already there, and the industry is pretty mature.

“I struggle to find any area that the government could announce incentives for the telcos. Maybe we will see some sort of indirect incentives, such as tax deduction on the purchase of smartphones, rather than direct incentives to telcos,” said Tan.

However, there are still the impending issue of the prepaid sales tax that is currently being footed by the telcos rather than the consumers.

Tan said the telcos are still lobbying very hard for the government to defer the sales tax burden on to the consumers. However, the current government’s stand is for the issue to be deferred to after the general election is held.

This article appeared in The Edge Financial Daily on August 27, 2012.