business conditions

 
 

Corporate tax cut may not be feasible, says economist

PETALING JAYA: It may not be feasible to grant the Federation of Malaysian Manufacturers’ (FMM) wish for a corporate tax cut to 20% from the current 24% in view of the country’s financial condition.

This is according to Sunway University Business School Professor of Economics Dr Yeah Kim Leng, who said that the current corporate tax rate does not affect Malaysia’s competitiveness in the region.

“Corporate tax rate is only one of the factors considered by foreign investors, what is important is the overall effective tax rate,” Yeah told SunBiz when asked about the call for a corporate tax cut.

Today FMM president Datuk Soh Thian Lai disclosed that 40% of 509 respondents to its semi-annual business conditions survey hoped for a reduction in corporate tax in the upcoming Budget 2020.

He said the government could emulate Singapore and Vietnam in cutting their corporate tax rates to enable industry players to enjoy higher profits amid the current environment.

“With more profits, they (industry players) could make more investments,” he said at a briefing on the survey findings.

However, Soh said the federation’s members understood the problems faced by the government, especially in tackling the hefty national debt.

Yeah explained that although a lower tax rate might spur investments and businesses, the current situation is biased towards direct taxation.

Last year, Malaysia saw the transition to the Sales and Service Tax (SST) from the more broad-based Goods and Services Tax (GST), as part of the Pakatan Harapan government’s manifesto pledge that has resulted in a drop in the tax base.

Yeah also pointed out that a review by the Finance Ministry showed that despite Malaysia’s higher corporate tax rate compared to some neighbouring countries, it does not deter foreign investments in the country.

This is in line with the International Monetary Fund’s (IMF) latest Fiscal Monitor Report that found no strong empirical evidence that moderately progressive tax systems harmed economic growth.

The IMF cited that countries with relatively low tax levels and degrees of redistribution could raise their top income-tax rate without hurting growth.

Soh also wished that the government could increase the development expenditure proportion to 24% from 17-18% in the previous years by cutting down wastage or leakages, which in turn would spur economic growth.

Apart from a tax cut, FMM members requested a clearer foreign worker policy from the government in the budget.

Soh said the federation has proposed a multi-tier levy system for the employment of foreign workers with 50% of the levy going towards a fund to aid local manufacturers in adopting automation to prepare them for Industrial Revolution 4.0.

Currently, an estimated 34% of FMM members have implemented automation in their manufacturing process, while 33% more are considering to do so.

Yeah lauded the suggestion as it would provide an incentive for the manufacturers to automate.

“Automation is long overdue as countries with a labour surplus are catching up as the standard of living improves, in turn this increases the labour cost for local businesses who employ the foreign workers.”

He added that the increased labour cost will force businesses to automate eventually.


Manufacturers cautious on business activities outlook for H2 2019, says FMM

KUALA LUMPUR, Aug 21 — Members of the Federation of Malaysian Manufacturers (FMM) remained cautious on the business activities outlook for the second half (H2) 2019 due to external factors such as the US-China trade tensions and Brexit. Citing the…


FMM members bracing for a slowdown in second half

PETALING JAYA: Members of the Federation of Malaysian Manufacturers (FMM) are bracing for a sluggish second half in 2019 due to uncertainties arising from the US-China trade tensions, Brexit and global economic slowdown.

Its President Datuk Soh Thian Lai (pix) cited the organisation’s business conditions survey conducted with Malaysian Institute of Economic Research indicated that only 29% of its respondents are projecting a pick up in business activities, while 28% are expecting a slowdown and the rest foresee their business to remain unchanged.

Meanwhile, the survey also revealed that the manufacturing sector took a downturn in the first half of the year with the business conditions index registering a score of 78 points against 107 points recorded in the second half of the previous year.

With regards to trade, only 25% of FMM members surveyed expect higher export sales in the second half of the year.


US consumer confidence highest of 2019 as tariff shock abates

WASHINGTON, July 31 — American consumer optimism rebounded unexpectedly in July, recovering from a trade war fright the month before, according to a survey released yesterday. Consumers again say jobs are plentiful, business conditions are good…


Darkening Australian consumer mood spells more trouble for economy

SYDNEY: Australian consumers turned decidedly gloomier this month, shrugging off two cuts in interest rates and a modicum of stability in falling house prices in a sign of further strain on an already struggling economy.

A measure of Australian consumer confidence released on Wednesday slumped 4.1% in July to a two-year low following a 0.6% fall in June.

The Melbourne Institute and Westpac Bank index of consumer sentiment skidded 9% from a year earlier to 96.5, meaning pessimists just outnumbered optimists.

The dismal data is one in a recent series of disappointing readings on the economy that could prompt another rate cut by the Reserve Bank of Australia (RBA) and pile pressure on the government to provide more fiscal support, economists said.

Consumers are critical to Australia’s A$1.9 trillion economy ($1.3 trillion) as sluggish household consumption has been the biggest drag on growth in the past year.

“The fall in sentiment this month is troubling as it comes against what should have been a supportive backdrop for confidence,” said Westpac senior economist Matthew Hassan.

The survey of 1,200 people was conducted as the RBA cut interest rates for a second straight month in July to a record low of 1% and left the door open to further easing.

Australian lawmakers last week approved A$158 billion ($109.95 billion) worth of tax cuts over the next decade, which will offer a $1,080 rebate to low-and middle-income earners.

There are also tentative signs of a recovery in the country’s subdued property market which will likely temper the erosion of housing wealth seen since late-2017. Yet, consumer sentiment has been hit by news about broader economic weakness and fears of rising unemployment, said Shane Oliver, chief economist at AMP.

Australia’s economy expanded at its slowest pace in a decade in the first quarter of the year and initial indications are that the poor run extended into the June quarter.

MORE RATE CUTS?

It’s not just consumers who appear dreary. A closely-watched measure of Australian business conditions released on Tuesday retreated in June, suggesting the business sector has lost momentum.

“Consumers and businesses are pretty cautious,” AMP’s Oliver said.

“If this continues then it’s a trouble for the government. They will have to consider fiscal stimulus,” Oliver added.

“We also think, ultimately the Reserve Bank will have to cut the cash rate again.”

Oliver is forecasting RBA to cut again in November followed by one more in February, taking the benchmark rate to an unprecedented 0.50%. Financial markets are pricing in an 80% chance of a third rate cut this year.

Westpac survey’s measure of economic conditions for the next 12 months slid 12.3%, while family finances compared to a year ago fell 3.0%.

There was hardly any optimism on the future, with the economic outlook for the next five years paring back sharply to fall 6.7% and family finances over the year ahead down 8%.

“Policy is set to be in play at every (RBA) board meeting between now and the end of the year,” Westpac’s Hassan said.

“Westpac continues to expect a further 25 basis point rate cut, most likely coinciding with a downgrade to the Bank’s growth and inflation forecasts in November.”


Australia business confidence falls back in June – survey

SYDNEY: A closely-watched measure of Australian business confidence retreated in June even as interest rates hit record lows, though Tuesday’s survey did show sales and employment managed to bounce a little.

National Australia Bank’s index of business conditions rose 2 points to +3, reversing a decline in May. In contrast, the survey’s measure of business confidence retraced its gains and fell 5 points to +2 in June.

“Overall, the survey results for June continue to suggest that the business sector has lost significant momentum over the past year or so,” said NAB Group Chief Economist Alan Oster.

“The recent run of results also suggest that the economy is unlikely to record a significant pickup in growth in Q2,” he added.

The economy expanded at its slowest pace in a decade in the first quarter of the year as consumers kept a tight rein on spending amid sluggish wages and falling home prices.

The Reserve Bank of Australia (RBA) has responded by cutting interest rates by a quarter point in both June and July, taking them to a record low of 1%.

NAB’s survey showed only a limited impact on activity in June. The measure of trading, or sales, edged up 3 points to +6, but profitability stayed soft at -2. Forward orders were also weak at -4.

One bright spot was a 3-point bounce in the survey’s employment index to +5, which hinted at some resilience in labour demand after the official jobless rate unexpectedly rose to 5.2%.

The RBA cited the need to push unemployment down to around 4.5% when it cut rates. Survey measures of inflationary pressure remained weak in June, with retail prices falling amid intense competition.


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Fed: US economy sees ‘slight’ gains; some slowing in manufacturing

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US consumer confidence hits six-month high in May

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