[PPT] - SOCIO SOCIO-ECONOMIC ECONOMIC RE RESE SEAR ARCH CH CE CENTR PowerPoint Presentation

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社会经济研究中心

SOCIO SOCIO-ECONOMIC ECONOMIC RE RESE SEAR ARCH CH CE CENTR NTRE Qua Quarte terly Eco Econo nomy my Trac acker er (J (Jul ul-Sep Sep 2017 2017)

Malay Malaysia sia: Gaining Gaining groun

und,

d, pr prepa eparing ring for

r futur

future

Lee Heng Guie Executive Director, SERC 10 October 2017

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Socio-Economic Research Centre 1

Age Agend nda Global economy is gaining momentum A broadening base for domestic growth 2018 Budget – Preparing for the future Conclusion

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Socio-Economic Research Centre 2

Key ey messa messages ges

Global economy on upswing, but risks remain Malaysia faces challenges in a position of strength

The Malaysian economy is gaining ground
Policy actions needed to boost growth, competitiveness and productivity
Address as well as contain vulnerabilities to build economic resilience

2018 Budget: Preparing for the future

Fiscal consolidation continues; optimization of expenditure
Re-engineer strategies and re-shaping competitiveness
Focus on domestic demand, connected economy, and e-commerce
Global growth outlook remains favourable
Confidence rising, sustained recovery in manufacturing and trade
Policy reforms to raise the growth potential; declining productivity growth

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Socio-Economic Research Centre 3

Sec Section tion 1: 1: The Big Picture in review…

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Socio-Economic Research Centre

Globa Global ec econ

nomy
my is

is in in a sync synchr hron

nised

ised rec ecover ery

4

3.2 3.5 3.6 2016 2017e 2018f World

Source: IMF (WEO July 2017)

1.6 2.1 2.1 2016 2017e 2018f United States 1.8 1.9 1.7 2016 2017e 2018f Euro Area 6.7 6.7 6.4 2016 2017e 2018f China 4.9 5.1 5.2 2016 2017e 2018f ASEAN-5 4.3 4.6 4.8 2016 2017e 2018f Emerging Market and Developing Economies 1.7 2.0 1.9 2016 2017e 2018f Advanced Economies

Figures denote real GDP growth (%)

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Socio-Economic Research Centre

98 99 100 101 102 2010 Jan Jul 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan Jul Total OECD CLI US CLI Euro Area CLI Japan CLI 48 50 52 54 56 58 60 2010 Jan Jul 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan Jul Global Manufacturing PMI Global Services PMI 98 99 99 100 100 101 101 102 2010 Jan Jul 2011 Jan Jul 2012 Jan Jul 2013 Jan Jul 2014 Jan Jul 2015 Jan Jul 2016 Jan Jul 2017 Jan Jul OECD-CCI OECD-BCI

Globa Global indica indicato tors point point to to ste stead ady globa lobal growth wth ahead ahead

Macro optimism comes from potential cut taxes, boost fiscal spending and loosen

regulations.

Markets are more focused on the prospects of the Trump’s reflationary policies and less on

the risk of policy shifts or other undesirable geo-politics outcomes.

OECD Composite leading indicators and PMIs suggest upside risks to global growth.

5

OECD composite leading indicators still steadying Global PMI for manufacturing and services on uptrend Business and consumer confidence trending higher

Source: OECD; Markit

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Socio-Economic Research Centre

WTO revised upwards this year’s global trade growth to 3.6% vs. IMF’s 4.0% (1.3% in

2016) from 2.4% previously. For 2018, global trade growth is estimated at 3.2% vs. IMF’s 3.9%.

Rebounding trade growth is supported by accelerating economic growth and rising import

demand in China and the United States, which spurred trade within Asia.

Trade to GDP ratio, which had slumped to about 1.1x since the GFC from 2.0x, should rise

to above 1.1x in 2017-18.

6

2.3 1.7 0.8 1.1 1.1 0.8 0.7 1.1 1.1 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 0% 2% 4% 6% 8% 10% 12% 14% 2010 2011 2012 2013 2014 2015 2016 2017e 2018f Ratio Annual change World Trade Volume (LHS) Trade-GDP Elasticity (RHS)

Source: IMF (World Economic Outlook); SERC’s computation

Globa Global tr trad ade rebo boun unding ding but but risks risks rema emain in

SLIDE 8

Socio-Economic Research Centre https://www.nbc.ca/content/dam/bnc/ en/rates-and-analysis/economic- analysis/monthly-equity-monitor.pdf 7

Econ Economic

mic sur

surpr prise ise inde index sho shows ws wi wide despr sprea ead im impr provement ement

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Socio-Economic Research Centre

First, the scale of reduction in the Fed’s balance sheet in the next few years will be

nowhere near as large as the increase during the expansion phase.

Second, some of the effects of balance sheet normalisation may already be factored in the
market. The FOMC is very unlikely to shock the market by announcing a more hawkish path

than this expectation implies, the impact of the event itself may be rather muted.

Third, the effect of balance sheet tightening may be offset by the Fed adopting an easier

path for short term interest rates than it otherwise would have chosen.

The key point is that the Fed’s future stance of monetary policy will be determined by the

combination of balance sheet normalisation and the path for the Fed funds rate.

8

The Fed is determined to avoid a repeat of the 2013 “taper tantrum” The he Fed ed emb embar arks ks on

n th

the “Great Unwind”

Potentially, this policy change would impact on the US

dollar, US bond yields, and capital flows as well as periods

f volatility. But, it is expected that this “Great unwinding”

transition will not be as eventful as some fear.

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Socio-Economic Research Centre

Wha hat to to exp xpec ect fr from

m th

the Fed’s shrinking shrinking ba balanc lance she sheet et?

Less than US$900 billion before the GFC to about US$4.5 trillion today—including about

US$2.5 trillion in Treasuries and US$1.8 trillion in mortgage-related securities.

The Fed will allow US$10 billion to roll off initially, increasing quarterly in US$10 billion

increments until the total hits US$50 billion starting in October 2017.

Potentially, this policy change would impact on the US dollar, US bond yields, and capital

flows.

9

To avoid a repeat of the 2013 “Taper tantrum”

Scale

US$6bn

per month for Treasuries at 3-mth intervals

ver 12 mths until it reaches

US$30bn per month

Mortgage-backed securities,

tapering US$4bn per month initially at 3-mth intervals

ver 12mths until it reaches

US$20bn per month

Market

Some

effects

f

the reduction may be already factored in the market

Unlikely to shock the market

by announcing a hawkish path

Interest rate

Future

monetary policy stance will be decided by the normalization

f

interest rates and unwinding

f

balance sheet

Balance sheet shrinking will

be offset by the adoption of easier short-term interest rate path

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Socio-Economic Research Centre

The he Gr Grea eat Unwind Unwinding ing: Wha hat ha happ ppen ens to to Trea easur sury Yields? Yields?

Fed’s QE program effect: Reduced 10-year term premium (bond yield) by 120 basis points in

2013; and reduced the dollar effective exchange rate by 4.5-5.0%.

It is estimated that the gradual runoff of the Fed’s US$4.5 trillion portfolio could drive the 10-year

Treasury yield up 15-20 basis points every year.

End-2017E: 10-year Treasury notes at 2.40%; End-2018F: 10-year Treasury notes at 2.60-80%

10

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Socio-Economic Research Centre

ASE ASEAN AN cu curren encies cies to to cope cope wi with th mil mild co correc ection tions

11

Source: UOB

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Socio-Economic Research Centre

Malaysia Malaysia is is in in a posi position tion of

f str

stren ength gth to to withsta ithstand nd ne nega gativ tive sho shocks ks

12

Diversified economic and trade structure

Structural transition towards high-value added sectors with varied export products and markets

Well-developed and resilient financial system

Strong capital and liquidity buffers with continued access to financing

Adequate reserves and manageable external debt

Ample international reserves and increased foreign asset holdings act as buffer against external shocks

Policy space and flexibility

Flexible exchange rate and monetary policy space

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Socio-Economic Research Centre 13

Sec Section tion 2: 2: Malay Malaysia: sia: Tur urning ning ar arou

und

nd, , look looking ing for

r

growth wth

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Socio-Economic Research Centre

The he Malaysian Malaysian ec econ

nomy
my is

is ga gaining ining grou

und

nd

The economy is looking up as the headwinds of past two years dissipate.
The economy held up strongly (5.7% yoy in 1H17 vs. 4.1% in 1H16), the highest in more

than two years. 2017’s economic growth will hit 5.5% and estimated 5.1% in 2018.

Resilient domestic demand, improving prospects for exports and corrective policy steps.

14

5.0 1.9 6.1 2.9 4.9 2.8 6.9 4.2 2.0 6.9 3.2 5.0 2.8 6.7 5.6 2.5 6.4 3.3 5.0 2.9 6.9 5.8 2.9 6.5 3.7 5.0 2.7 6.9

5.5 5.3

Malaysia Singapore Philippines Thailand Indonesia South Korea China

Real GDP growth (% YoY) 2015 2016 1Q 2017 2Q 2017 3QE 2017 4QE 2017

Source: Various officials

Malaysia was among the fastest-growing economies

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Socio-Economic Research Centre

Sna Snapsh pshot

t of
f rea

eal ec econ

nomic
mic and

and sen sentimen timent indica indicato tors

15

Industrial production grew steadily Exports still growing at a robust pace (22.2% in 8M17) Manufacturing sales recorded highest growth since March 2010

6%
4%
2%

0% 2% 4% 6% 8% 10% 12% 2011 Jan Apr Jul Oct 2012 Jan Apr Jul Oct 2013 Jan Apr Jul Oct 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Jul Industrial Production (yoy)

20%
10%

0% 10% 20% 30% 40% 50% 2 4 6 8 10 12 14 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Jul RM billion Trade Balance (LHS) Exports (yoy) (RHS) Imports (yoy) (RHS)

10%
5%

0% 5% 10% 15% 20% 25% 2011 Jan Apr Jul Oct 2012 Jan Apr Jul Oct 2013 Jan Apr Jul Oct 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Jul Manufacturing Sales (yoy)

Business condition improves while consumer sentiment still below the 100pt threshold

60 70 80 90 100 110 120 130 2011Q1 Q2 Q3 Q4 2012Q1 Q2 Q3 Q4 2013Q1 Q2 Q3 Q4 2014Q1 Q2 Q3 Q4 2015Q1 Q2 Q3 Q4 2016Q1 Q2 Q3 Q4 2017Q1 Q2 MIER's Consumer Sentiments Index (CSI) MIER's Business Conditions Index (BCI)

Source: DOS, Malaysia; MIER

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Socio-Economic Research Centre

Pri Priva vate te co consu nsumpt mption ion stil still po power ering ing th the ec econ

nomy
my
Resilient consumer spending (6.9% yoy in 1H17; 2017E: 6.8%).
Factors underpinning consumer spending: employment, wage growth, commodity income

and income-support measures.

Private consumption will remain the dominant driver of growth (2016-2020F: 6.4% pa vs.

7.1% pa in 2011-15).

16

Real private consumption growth trend (% YoY)

Source: DOS, Malaysia; SERC

Stable labour market conditions

3.4% 3.4% 4.3% 5.8% 0% 1% 2% 3% 4% 5% 6% 7% 8% 2013 2014 2015 2016 1H 2017 Unemployment Rate (%) Wage growth for manufacturing and services sectors (yoy) 6.9 8.3 7.2 7.0 6.0 6.0 6.9 6.8 48.8% 50.2% 51.4% 51.9% 52.3% 53.2% 53.9% 2011 2012 2013 2014 2015 2016 1H 2017 2017f SERC Real Private Consumption Growth (%) % Share of GDP

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Socio-Economic Research Centre

Pri Priva vate te in invest estmen ment mak makes es a str stron

ng co

come meba back

Private investment staged a strong expansion of 10.0% yoy in 1H2017 after trapped in

lower growth trajectory since 2Q 2015.

High capital spending in the services and manufacturing sectors.
Uncertainty ahead of GE14 may temper private investment (2017E:9.2%, 2016-2020F:

8.2% pa vs. 12.2% pa in 2011-15).

17

Quarterly real private investment growth (% YoY)

11.5 3.8 5.3 4.7 2.1 5.6 4.8 4.9 12.9 7.4 2015Q1 Q2 Q3 Q4 2016Q1 Q2 Q3 Q4 2017Q1 Q2 Private Investment Growth (% yoy)

Real private investment growth trend (% YoY)

9.5 21.4 12.8 11.1 6.3 4.3 10.0 9.2 12.8% 14.7% 15.9% 16.6% 16.8% 16.9% 19.7% 2011 2012 2013 2014 2015 2016 1H 2017 2017f SERC Real Private Consumption Growth (%) % Share of GDP

Source: DOS, Malaysia; SERC

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Socio-Economic Research Centre

Expo Exports ts swi wing ng fr from

m a dr

drag to to a dr driv iver er of

f growth

wth

Exports have staged a strong recovery since Nov 2016 (estimated 17.5% in 2017 vs. 1.2%

in 2016). Exports are projected to rise by 7.5-9.5% pa in 2018-2020.

Three fundamental drivers: improved global demand, tech demand and higher commodity
prices. Base and weak exchange rate effects have inevitably played some part.
Risks to trade could come from trade protectionism and disruptive policies in advanced

economies.

18

Source: DOS, Malaysia

Exports bounced back strongly

0% 5% 10% 15% 20% 25% 30% 35% 20 40 60 80 100 120 140 2011 2012 2013 2014 2015 2016 8M2017 RM billion Trade Balance (LHS) Exports (yoy) (RHS) Imports (yoy) (RHS)

Major export products 2016 8M2017 Electrical & electronics (36.6%) 3.5% 21.4% Chemical, with products (7.5%) 7.0% 18.3% Petroleum products (6.9%)

0.1%

43.6% Palm oil (5.3%) 3.3% 18.8% Machinery equipments (4.8%) 4.2% 6.9% Manufacturers of metal (4.2%)

4.3%

8.6% Liquefied natural gas (4.1%)

28.2%

34.6% Optical & scientific equip. (3.7%) 10.2% 12.2% Crude oil (2.8%)

14.6%

33.2% Overall gross exports 1.2% 22.2%

Higher exports across the board

Parenthesis indicates share of overall gross exports in 2016

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Socio-Economic Research Centre

Malaysian Malaysian ring ringgit git not not sole sole co cont ntribu ributo tor of

f high

higher er exp xpor

rts

ts

19

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Socio-Economic Research Centre

Whe here is is our

ur growth

wth co coming ming fr from?

m?
Broad-based output expansion. Domestic demand still calling the shots.
All economic sectors registered positive growth in 1H 2017.
Services and manufacturing sectors are the dominant growth drivers.

20 % change, 2010=100 2015 2016 2017 1Q 2017 2Q 2017 1H 2017e (SERC) 2018f (SERC) GDP by demand component

Private consumption (53.2%) 6.0 6.0 6.6 7.1 6.9 6.8 6.2 Private investment (16.9%) 6.3 4.3 12.9 10.7 10.0 9.2 8.3 Public consumption (13.1%) 4.4 0.9 7.5 3.3 5.3 5.1 4.0 Public investment (8.5%)

1.1
0.5

3.2

5.0
0.9

1.2 2.0 Exports of goods and services (70.4%) 0.3 1.1 9.8 9.6 9.7 9.9 6.7 Imports of goods and services (62.1%) 0.8 1.1 12.9 10.7 11.8 11.7 7.8

GDP by economic sector

Agriculture (8.1%) 1.3

5.1

8.3 5.9 7.1 6.0 4.0 Mining & quarrying (8.8%) 5.3 2.2 1.6 0.2 0.9 1.0 1.5 Manufacturing (23.0%) 4.9 4.4 5.6 6.0 5.8 5.7 5.5 Construction (4.5%) 8.2 7.4 6.5 8.3 7.4 8.0 9.0 Services (54.3%) 5.1 5.6 5.8 6.3 6.1 5.9 5.6

Overall GDP 5.0 4.2 5.6 5.8 5.7 5.5 5.1

Source: DOS, Malaysia; BNM; SERC Parenthesis indicates % share to GDP in 2016

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Socio-Economic Research Centre

Infla Inflation tion tr tren ends ds - Fuel Fuel pr price ice rema emains ins a big big wild wild ca card…

High fuel prices-inflicted cost price pressures along with other indirect costs such as the

spillover effect of the weakening ringgit pushed inflation higher to 5.1% yoy in March.

But, it had moderated from 4.3% in 1Q to 4.0% in 2Q and 3.2% in July before moving

higher to 3.7% in August. CPI growth up 3.9% in 8M17.

Inflation is expected to increase by 3.9% in 2017 and 2.5-3.0% in 2018.

21

Fuel price and exchange rate changes

n

inflation Inflation is largely driven by food prices and volatile fuel prices

Source: BNM; DOS, Malaysia; SERC

15%
10%
5%

0% 5% 10% 15% 20% 25% 30%

3%
2%
1%

0% 1% 2% 3% 4% 5% 6% 2011 Jan Apr Jul Oct 2012 Jan Apr Jul Oct 2013 Jan Apr Jul Oct 2014 Jan Apr Jul Oct 2015 Jan Apr Jul Oct 2016 Jan Apr Jul Oct 2017 Jan Apr Jul Food & Non-Alcoholic Beverages (yoy) (LHS) Housing, Water, Electricity, Gas & Other Fuels (yoy) (LHS) Services (yoy) (LHS) Transport (yoy) (RHS) Inflation Rate 2017f: 3.9% 30 Sep 2017: RON95: RM2.16 29 Sep 2017: RM/US$: 4.2220

20%
15%
10%
5%

0% 5% 10% 15% 20% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Inflation Rate RON 95 Petrol Price (end-period, % change) RM/USD (end-period, % change)

SLIDE 23

Socio-Economic Research Centre

The he ring ringgit git does does not not reflec eflect its its fund fundament amental al value value

In REER terms, the ringgit has appreciated by 0.5% as of August this year (-15.0% in 2013-16).
Positive fundamentals: Brightening economic growth prospects, firming commodity prices,

the onshore ringgit stabilization measures, prospect of domestic interest rate normalization, continued current account surplus, accumulation of foreign reserves.

Counteract dampening factors: Strong US dollar, higher US interest rates and yields, flows

into the US dollar assets, geopolitical risks and developments in global financial markets.

End-2017E: RM4.20/US$1; End-2018F: RM4.10-4.20/US$1

22

4.3%
0.6%

15.5%

6.9%
2.0%
4.8%

1.2%

6.6%
2.1%

2.4% 5.9%

4.7%
0.5%

2.2% 0.0%

1.1%

9.2% 6.1% 0.6% 1.4% USD EUR GBP JPY SGD THB PHP IDR KRW CNY

Regional currencies against USD Ringgit performance

4.3%
3.7%
17.1%

2.8%

2.4%

0.5%

5.4%

2.5%

2.2%
6.5%

5.9% 11.2% 6.4% 3.6% 5.9% 7.1%

3.1%
0.2%

5.2% 4.4% MYR EUR GBP JPY SGD THB PHP IDR KRW CNY

Source: Bank Negara Malaysia

6 Oct 2017 2016

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Socio-Economic Research Centre

Malaysia’s med medium ium-te term ec econ

nomic
mic ou
utloo

tlook

Medium-term growth prospects are positive (5.1% pa in 2016-20 vs. 5.3% pa in 2011-15).
Domestic demand still dominant.
Services, manufacturing and construction sectors remain key drivers of growth.
Public infrastructure and transportation projects (rail, ports, highways) and investment in

major economic sectors (manufacturing, services, mining and real estate).

23

5.3 5.5 4.7 6.0 5.0 4.2 5.5 5.1 5.4 5.5 2011 2012 2013 2014 2015 2016 2017e 2018f 2019f 2020f

Real GDP Growth (%)

Source: DOS, Malaysia; SERC

SLIDE 25

Socio-Economic Research Centre

Can Can BNM BNM af affor

rd to

to incr increa ease se inte interest est rate tes? s?

24

Lingering uncertainties in global economic and financial environment
Higher US interest rates and unwinding of the Fed’s balance sheet
Volatile capital flows and exchange rate

Policy environment Growth, inflation and financial imbalances

Is domestic economic growth strong enough?
Domestic demand faces headwinds (high cost of living and weak consumer sentiment)
Cost-induced inflation outweighs demand pressure
Household debt to GDP eased to 85.6% at end-June 2017 (88.4% at end-2016; 89.1%

at end-2015)

Continue to monitor the risk of financial imbalances

BNM will face a tough yet decisive balancing act if the Fed takes more aggressive run of rate increases ahead

OPR GDP Inflation 3.50% 2007 6.5% 2.0% 3.25%  2008 4.7%  5.4%  2.00%  2009

1.7% 

0.6%  2.75%  2010 7.4%  1.6%  3.00%  2016 4.2%  2.1% = 3.00% = 2017e 5.5%  3.9%  3.25-3.50%  2018f 5.1%  2.5-3.0% 

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Socio-Economic Research Centre 25

Sec Section tion 3: 3: 2018 2018 Bud Budge get – Pr Prep epar aring ing for

r the

the futu future

SLIDE 27

Socio-Economic Research Centre

Fiscally responsible

Further reduction in the budget deficit to estimated 2.8% of GDP in 2018

from 3.0% in 2017.

Development expenditure is budgeted at RM49.5 billion in 2018 (estimated

RM45.4 billion in 2017).

Challenges in 2018

Policy uncertainty and risks: the impact of Fed’s Great Unwind and

continued rate hikes; Trump’s policy landscape, geopolitical tensions.

Domestic economic and social issues: rising cost of living, high prices,

housing affordability, employment opportunities for youth and graduates, high cost of doing business and compliance costs.

2018 2018 Bud Budge get: Pr Prud uden ent, t, resp espon

nsible,

sible, for

rwar

ard-looking looking

26

Tax break and financial incentives

Least painful budget.
Tax cut and reliefs for corporates, individuals and households.
Higher BR1M, bonus for civil servants, special cash assistance for

targeted groups.

Capital allowances and incentives to spur investment in ICT.

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Socio-Economic Research Centre

Whe here 2018 2018 Bud Budge get sho should uld foc

cus

us on?

n?

27

Driving competitiveness and productivity

Competitive framework – tax structure and regulatory environment
Unlocking high productivity and innovation is critical

Digital technologies and transformation

Building a connected ecosystem
Technology disruption

Rising global complexity

Unpredictable policy shift in advanced economies
Shifting hotspot of dominant economic power

Ageing population

Widening retirement savings gap
Rapidly escalating healthcare expenditure

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Socio-Economic Research Centre

#1 Drivi Driving ng co compe mpetitiv titiven eness ess and and pr prod

duc

uctivi tivity ty

Global competition to cut corporate tax heats up
Malaysia’s productivity growth is lagging behind
Strategies and initiatives

 Push for a competitive tax structure  Restructure and improve the management of foreign workers  Actively encourage the adoption of 4th Industry Revolution  Create dedicated pool of investment funds or align existing fund to drive 4th Industry Revolution agenda nationally

28

21.6 0.7%

0.5%

1.1% 0.0% 1.3% 3.4% 6.6% 3.0% 4.4% 4.6%

1%

0% 1% 2% 3% 4% 5% 6% 7% 20 40 60 80 100 120 140 160 US Australia Singapore Japan Korea Malaysia China Thailand Philippines Indonesia USD (‘000) Productivity Level (LHS) Growth (RHS)

Higher FW remittances

17 30 2.06 2.14 (2015)

1 2 5 10 15 20 25 30 35 2008 2016 million person RM billion Outward Workers’ Remittances (LHS) Number of FW (RHS)

Source: EY; MPC; BNM; EPU

30 25 25 24 24 20 20 20 18.5 17 Philippines Indonesia Myanmar Malaysia Laos Vietnam Thailand Cambodia Brunei Singapore

Regional corporate tax rate comparison Regional labour productivity comparison in 2015

SLIDE 30

Socio-Economic Research Centre

Wha hat needs needs to to be be done? done?

29

Malay Malaysia sia needs a competit needs a competitiv ive e tax tax sy syst stem em

Tax reform – a simpler, fairer system with lower rates and fewer brackets.
Inaction in making Malaysia’s tax system more competitive would have

significant impact on our economy, businesses, investors and households.

A lower corporate tax rate increases Malaysia’s competitiveness. An

increased flow of tax-free capital that will boost investments and production.

Personal tax rate cut serves to increase disposable income of wage earners

and households, and lift consumer purchasing power.

The US is planning to slash its corporate tax rate from 35% to 20% while

Britain’s corporate tax rate is slated to fall 1% a year to reach 17% in 2020.

Cut Cut in cor in corpor porate & per te & personal sonal income tax r income tax rate te

Outright reduction in corporate tax rate by 1% to 23%.
For SME, lower the tax rate to 17%. Increase the threshold level of

chargeable income for the first-tier tax rate to RM1.0-2.0 million from the current RM500,000.

Lower personal income tax rate by 1-2%.
Higher

tax reliefs and rebates related to children education, self- enhancement (education) and medical expenses.

SLIDE 31

Socio-Economic Research Centre

#2 Digital Digital te techn hnolog

logies

ies and and tr tran ansf sfor

rma

mation tion

Transport – seamless connectivity, safety, reliability and speed
Connectivity/communication – investment in ICT to scale benefits of digitalization,

broadband speed and reliability of coverage

Space/housing
Manufacturing for the future
Consumer culture (taste, fashion and lifestyle)

30

Moderately usage of ICT Malaysia National E-Commerce Strategic Roadmap to double the e-commerce growth

Source: National E-Commerce Strategic Roadmap; SERC

2.90 2.82 2.90 3.00 3.23 2.48

All SMEs Construction & Property Development Trading (Imp & Exp) Wholesale & Retail Manufacturing Professional services

Average Current Level of ICT Use

(1=Highly advanced 2=High 3=Moderate 4=Low 5=None)

2015 2020

business as usual

2020

with intervention

e-Commerce contribution

(RM billion)

68 114 170+

e-Commerce growth

(% CAGR)

12.8

2012-2015

10.8

2015-2020

20.8

2015-2020

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Socio-Economic Research Centre

Wha hat needs needs to to be be done? done?

31

Sha Shaping ping a connected a connected and digital economy and digital economy

Digital economy is about speed, accountability and transparency and no

barriers to entry.

Build a vibrant national innovation system.
Offer tax breaks and incentives to private players.
Enhance the RM200 million WCGS (Working Capital Guarantee Scheme)

to drive startups.

Establish a Tecno-prenuer fund to promote innovation and new technology

access initiative.

Har Harness nessing ing the po the power of er of Industr Industrial ial Revolution 4.0

lution 4.0
Only 30% have started to invest and leverage on modern technology.
Targeted incentives and grants, investment capital allowance.
High-tech Industrial Adjustment Fund to facilitate more manufacturers and

SMEs to automate and embrace industrial Internet.

Extend the current capital allowance of 200% on automation expenditure

in terms of value and time limit.

Raise the RM50,000 cap on double tax deduction on R&D expenditure for

the period 2016-18.

SLIDE 33

Socio-Economic Research Centre

Wha hat needs needs to to be be done? done?

32

Har Harness nessing ing e-commer commerce's ce's pr propulsion

pulsion
Expedite the implementation of initiatives and measures as outlined in the

National eCommerce Strategic Roadmap.

Develop a reliable and vibrant logistics delivery system as logistics remain

a critical part of e-Commerce.

Develop a Smart-delivery system that helps automate and scale delivery

for SME merchants.

Set up a Smartlogistic’s open, platform-approach will help SMEs finding

the best cost-effective shipping rates and quickest delivery time depending

n the product weight, destination and other variables.
The entry of Alibaba into Malaysia’s e-commerce ecosystem must be

made “inclusive” and spur domestic linkages via strategic collaborative partnership with domestic SMEs.

To reduce tax barriers to enable Malaysians to play an active role in e-

commerce, it is proposed that the purchase value of goods via the Internet

r e-commerce in the DFTZ, to be exempted from tax, be raised from

RM500 to RM1,200.

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Socio-Economic Research Centre

#3 Risi Rising ng globa lobal co comple mplexity xity

According to PwC, emerging markets will continue to be the growth engine of the global economy.
By 2050, China could be the largest economy in the world, with India in second place and

Indonesia in fourth place. Malaysia will improve to 24th placing from 27th in 2016.

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Sources: IMF for 2016 estimates, PwC analysis for projection 2050

2016 2030 2050 China 1 China 1 China 1 US 2 US 2 India 2 India 3 India 3 US 3 Japan 4 Japan 4 Indonesia 4 Germany 5 Indonesia 5 Brazil 5 Russia 6 Russia 6 Russia 6 Brazil 7 Germany 7 Mexico 7 Indonesia 8 Brazil 8 Japan 8 UK 9 Mexico 9 Germany 9 France 10 UK 10 UK 10 Malaysia 27 Malaysia 25 Malaysia 24 Emerging market will dominate the world’s top 10 economies in 2050 (GDP at PPPs) Vietnam, the Philippines and Nigeria could make the greatest moves up the rankings by 2050 Vietnam Philippines Nigeria Malaysia Average annual GDP growth rate, 2016-2050 5.1% 4.3% 4.2% 3.5%

2050 2016

up 12 places up 9 places up 8 places

20th 32nd 28th 22nd 27th 19th 14th 24th

up 3 places

E7 economics G7 economies

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Socio-Economic Research Centre

#4 Age Ageing ing po popu pula lation tion

Malaysia will become an ageing population by 2030 when 15% of our population will be

aged 60 and above (9.3% or 3.0 million in 2016).

The ageing population and lifestyle illnesses are drivers of growing healthcare expenditure;

dampening productivity, deter investment and elderly people spend differently.

Fiscal cost on healthcare, social protection and housing will be substantial for elderly

population.

The combined pressures of ageing and the retirement savings gap might redefine the

concept of retirement into the future (tapered retirement).

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9.9% 15.3% 19.8% 0% 5% 10% 15% 20% 25% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040

Population projection for aged 60 years and above (% of total population) Sources: DOS, Malaysia

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Socio-Economic Research Centre

Wha hat needs needs to to be be done? done?

35

Mana Managing popula ging population a tion ageing geing

The fundamental approach and reform of public policies should cover the

aspects of safer living community, preserving human capital asset, social welfare, healthcare services as well as a sustainable retirement income and pension scheme.

The EPF can consider gives an additional dividend says 1% on the first

RM50,000 of total accumulated EPF savings for employees aged 50 years and above.

Long-term

healthcare insurance system, part-funded by compulsory premiums for all those over the age of 45, and part-funded by national budget.

With increasing life expectancy, it is proposed that the tax relief for private

retirement scheme and annuity premium be increased to RM6,000 from RM3,000.

Other policy changes to be considered include considering higher EPF

contribution rate by employers to older employees, which most companies have capped at a fixed contribution rate and lower EPF contribution rate.

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Socio-Economic Research Centre

Wha hat needs needs to to be be done? done?

36

Mi Mitiga tigating ting ris rising healthcar ing healthcare cost e cost

Separate tax relief for medical insurance. Currently, the RM3,000 tax relief

is combined for medical and education insurance.

Separate

individual tax relief

f

the current RM6,000 for KWSP contributions and life insurance so as to encourage individuals to take up insurance policies.

Current GST exemption on life insurance to be extended to include

medical or healthcare insurance.

Aged-caring tax policy to encourage employers to provide better medical

coverage for their employees. If a small business has fewer than 25 employees and provides health insurance, it may qualify for a small business tax credit of up to 50% to offset the cost of insurance.

With rising costs of medical expenses for elderly parents, it is proposed

that the tax relief for parents’ medical expenses be increased to RM7,000 from RM5,000.

Tax relief for medical expenses on chronic diseases be raised to RM8,000

from RM6,000.

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Socio-Economic Research Centre

Con Conclusion lusion

1) The global economy is in a synchronized expansion of economic activities. It is a mutual reinforced economic upswing in both advanced and emerging economies. 2) Policy uncertainty will remain in 2018, and the risks include unexpected changes in monetary policies and the shrinking of the Fed’s balance sheet, the financial-sector uncertainty in major economies, as well as geopolitical tensions. Pressures for protectionism are building up. 3) The Malaysian economy remains on track for expansion, firing on twin engines (2017E: 5.5%; 2018F:5.1%). 4) Strengthening policy space, addressing vulnerabilities, and enhancing international competitiveness by promoting investment, services, high-end manufacturing and FDI would also boost economic resilience and improve growth prospects. 5) Reaping digital technologies dividend requires the right policy mix and investments such as software and hardware investment, soft skills and the right ecosystem to harness information, communications and technology (ICT) and e-commerce to deliver increased productivity and growth.

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Socio-Economic Research Centre

Press Conference on SERC’s Quarterly Economy Tracker Third Quarter of 2017

Q & A

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SLIDE 40

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