Recalibration: Malaysia Budget 2016 Highlights

Recalibration: Malaysia Budget 2016 Highlights

Prime Minister Datuk Seri Najib Tun Razak has announced a revised Budget 2016 Malaysia to optimise the country’s development and operational expenditures amidst falling oil prices and slower economic growth.

When the Malaysia Budget 2016 was tabled in Octobe last year, crude oil price was at US$48 per barrel. However, it has now fallen to US$30 per barrel.

The global economic situation, coupled with the decline in crude oil price is estimated to cause the national revenue to fall by RM7 billion to RM9 billion.

In this recalibrated budget, the Government has revised the 2016 Gross Domestic Product (GDP) growth forecast to 4% to 4.5% from 4% to 5%, based on the assumption for averaged Dated Brent crude oil price of between US$30 and US$35 per barrel. The fiscal deficit target remains at 3.1%.

To achieve these targets, the 2016 Budget revision incorporated measures to optimise expenditure to reflect the current economic situation. These measures include:

Cost of living

It’s undeniable that the cost of living has escalated at an alarming rate. The same RM50 can no longer get you the same things you used to get a year or two ago. Since the implementation of the Goods and Services Tax (GST), Malaysians have been struggling to cope financially, coupled with the rising rate of layoffs in the country, this could be the recipe for a financial disaster.

To help the rakyat cope with the rising cost, here are the key points mentioned in the budget revision by Datuk Seri Najib:

  • To increase the people’s discretionary income to cope with the rising cost of living, the Government has agreed to lower the employees’ contribution to Employee’s Provident Fund (EPF) by 3% beginning March 2016 to December 2017. Contribution by employers will remain at 12% (for employees earning above RM5,000) and 13% (for employees earning RM5,000 and below). The new rate means employees have the option of contributing only 8% of their salary to EPF. This is expected to increase private sector spending by RM8 billion a year.
    However, for taxpayers, the additional discretionary income they get from this will still be taxed.
  • The Federal Agricultural Marketing Authority (FAMA) will establish markets or MyFarm Outlets that sell agricultural produce directly such as fish, poultry, meat, vegetables and fruits at prices between 5% and 20% below market prices. These outlets will be established in 11 locations, the first location being Precinct 7, Putrajaya in March.
  • The Government will liberalise Approved Permits (Aps) for eight agricultural products including coffee beans and meats. This will ensure consistency of supplies for these items.
  • The Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC) to identify more fair price shops, including foreign and local hypermarkets, and increase the number of these shops from 640 to 1,000 this year.
  • According to Senator Datuk Seri Abdul Wahid Omar, Malaysia’s poverty rate went down to 0.6% last year from 1.7% in 2012. These hardcore poor households may be struggling to cope with the increasing cost of living, hence the MyBeras programme will be introduced where 20kg of rice will be distributed to these households every month until December 2016.



Affordable housing remains one of the main problems faced by Malaysians. With the cost of living skyrocketing of late, many non-home owners are finding it hard to save money to buy their first home. Following the same vein in the past few national budgets, the revised budget this year also look into more ways to help Malaysians own their first home.

Here are the key highlights:

  • All new housing projects priced up to RM300,000 will be limited to first-time house buyers only, with immediate effect.
  • The Government will organise Integrated House Ownership Expo Roadshows, which will offer more than 100,000 housing units under programmes like the National Housing Department (JPN), 1Malaysia People Housing Programme (PR1MA), Syarikat Perumahan Negara Berhad (SPNB), and Perumahan Penjawat Awam 1Malaysia (PPA1M).
  • For houses priced at RM35,000 under the People’s Housing Programme (Projek Perumahan Rakyat or PPR), the Government will offer a financing package at 4% through Bank Simpanan Nasional (BSN) and Bank Rakyat. This will benefit more than 10,000 house owners.



The middle-income earners are not left behind in this revision with the reintroduction of the special tax relief of RM2,000 for individual taxpayers with a monthly income of RM8,000 or below. This is valid for the Year of Assessment 2015 and will benefit two million taxpayers. This was last introduced for Year of Assessment 2013.

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Earlier this month, just weeks before the budget 2016 recalibration announcement, Datuk Seri Dr Wee Ka Siong, was purportedly misquoted by a few news outlets as saying the Public Service Department (JPA) has suspended government scholarships and that the matter was being studied by the department. This has created panic among parents and students. Though it was not confirmed, it was also not announced in the revised budget.

In the recalibrated budget 2016, Datuk Seri Najib announced four programmes under the sponsorship of the Public Service Department (PSD) that will continue for 2016:

  • The National Scholarship Programme for 20 top SPM students to pursue study at renowned universities globally.
  • The Special Engineering Programme for 200 students to Japan, Korea, Germany and France.
  • The Bursary Graduate Programme for 744 students to pursue undergraduate studies in public universities and private institutions of higher learning in the country.
  • The new intake of 8,000 students will be awarded scholarships to pursue undergraduate studies in the country.

Other measures to encourage education of the next generation are:

  • RM5 billion will be allocated for the National Higher Education Fund (PTPTN) for undergraduates,
  • MyBrain15, Academic Training Scheme for Bumiputera (SLAB) and Academic Training Scheme of Public Higher Education Institutions (SLAI) programmes will be continued to intensify investment in human capital,
  • Increase the students from 25,000 overall to: 15,000 new students for the MyMaster programme, 5,000 for MyPhD, and 300 for SLAI. These programmes will be given an additional allocation of RM300 million.


With the falling Ringgit, tourism is expected to pick up in Malaysia. Furthermore, the increase in tourist arrivals will stimulate domestic economic growth, especially in today’s global economic climate. This year, the Government will focus more on the industry with the following highlights included in the budget:

  • The promotion of domestic tourism will be intensified through organising sales of integrated domestic holiday packages.
  • The Government will facilitate the entry of foreign tourists by expediting the implementation of eVisa to several countries which have been identified.
  • Tourists from China will not require a visa to visit Malaysia from March 1 to December 31, 2016 (for a period of stay not exceeding 15 days).

Check and balance: What is the Government doing to boost its shrinking coffers?

Increase revenue

The falling oil prices will undoubtedly affect the country’s revenue. In its bid to optimise its revenue, the Government are taking the following measures:

  • Double compliance and auditing efforts on tax evaders,
  • Special consideration for penalty on tax evaders to encourage them to come forward and declare their past years’ income if tax arrears are settled before December 31, 2016,
  • For duty-free islands, the Government will restructure the selling channel of cigarettes and liquors limited to duty-free outlets licensed by the Royal Malaysian Customs Department (RMCD). This is expected to reduce revenue loss of up to RM1 billion,
  • Free duty treatment on imported vehicles in duty-free islands will be tightened,
  • The Government will optimise the revenue from the telecommunication spectrum through a redistribution and bidding process which will be implemented soon, and
  • Develop several strategic areas owned by the Government through a bidding process to invigorate economic activity.

Reduce spending/expenditure

To ensure the country’s target to reduce fiscal deficit, and stay on track for growth, the Government first needs to ensure its spending is optimise. Though emolument for civil servants and pensions of retirees will not be affected, the prime minister has committed to the following measures in cutting spending:

  • Government will exercise prudent spending on supplies and services and to continue with grant rationalisation. However, the measures were not specified in the Budget 2016 recalibration announcement.
  • The development budget will focus on projects and programmes that place the people first, have high multiplier effect and low import content.
  • Physical projects (including construction of affordable houses, hospitals, schools, roads, public transport and security) to be prioritised. Non-physical projects and projects still under study to be rescheduled. This is expected to reduce cash flow commitments up to RM5 billion.

The revised Budget 2016 is expected to help save RM9 billion in operating expenditure and development expenditure.

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