Malaysia's government cut corporate tax rates and property stamp duty in the 2008 Budget unveiled Friday, in an attempt to spur the economy which is imperilled by an uncertain global outlook.
Prime Minister Abdullah Ahmad Badawi, who is expected to call elections early next year, handed out some sweeteners to woo voters, but an expected income tax cut failed to materialise. Instead, he opted to cut the corporate tax rate another one percentage point to 25 percent from 2009, adding to previously announced reductions which have lowered it from 28 percent.
"The government is committed to providing a conducive investment climate for the private sector," he said in the budget speech. "An important step in this regard is to ensure that the nation's corporate tax regime remains competitive." "I am confident that this reduction will have spillover effect in terms of economic growth and employment opportunities."
He also announced reductions in stamp duty, and a measure to allow homeowners to pay their mortgage using their pension fund - moves aimed at encouraging home ownership and stimulating the property sector.
"The global and regional economic outlook is expected to be more challenging and uncertain. However, with the policies and strategies in the 2008 budget, the nation's growth prospects will continue to remain strong, with growth projected between 6.0-6.5 percent in 2008," the premier said.
Chua Hak Bin, an economist with the Singapore-based Citigroup Global Capital Markets, said that while the Budget contained measures to help the poorest Malaysians, the lack of an income tax cut was regrettable.
"Yes there is disappointment. Other countries like Singapore have cut personal taxes, with their highest tax rate at 20 percent. By not cutting personal tax, Malaysia risks a brain drain," he told AFP. But with an eye to elections, which are tipped to be held well before a 2009 deadline, Abdullah announced that school fees would be axed, and that a free books scheme currently offered to poor students would be extended to everyone.
Deputy Prime Minister Najib Razak defended the decision to maintain personal income tax at 28 percent, saying that cutting the budget deficit was a priority. "We cannot give too much exemptions. We must understand government revenue has to be given attention," he told reporters.
"It is not so much an election budget. It is a budget based on a national mission that we want to achieve. Ultimately it is up to the voters to decide." Malaysia is aiming for 6.0 percent growth this year, after its economy expanded by 5.9 percent in 2006. Malaysia, Southeast Asia's third-largest economy, has seen foreign direct investment steadily declining in recent years. In 2006 it amounted to an estimated 3.9 billion dollars, compared to 5.5 billion dollars in 2001.