PETALING JAYA: Budget 2017, which will be tabled on Oct 21, is likely to be modestly expansionary with emphasis on high infrastructure spending, selective relaxation for property purchases, promotion of growth areas, relief for middle income and low income earners.

UOB Kay Hian said Budget 2017 would likely be modestly expansionary at best, although widely seen as an election budget. It said in a report that the Government would continue to keep fiscal discipline (2016 fiscal deficit target at 3.1% of gross domestic product (GDP)) amid a slow economic growth and low crude oil prices.

UOB’s Global Economics and Markets Research Team forecasts annual GDP growth for 2016-17 at 4.2% and 4.5% respectively. Nevertheless, fiscal stimulus efforts would continue to be reinforced by off-balance-sheet mega infrastructure projects and fiscal spending by the government-linked companies (GLC).

According to the brokerage, the key fiscal stimulus announcements were expected in infrastructure spending (via development expenditure), selected relaxation in the property sector, particularly on re-allowing DIBS (interest cost absorption scheme) for first-time house buyers and promoting affordable housing.

It said that others were promoting growth areas such as value-added exports, transportation and logistics, digital economy and tourism, relief for the middle income (tax relief) and low income (higher BR1M handouts) earners.

Budget 2017 should benefit from a total of RM12.75bil allocated for current projects in rails (RM8.59bil), roads (RM1.13bil), maritime (RM3.03bil), and aviation, on top of an additional RM34bil worth of infrastructure investments under study.

Recall that Budget 2016’s net development expenditure was raised by 6.1% to RM49.2bil.

“We do not foresee duty hikes being imposed for the brewery and tobacco sectors, particularly for the battered tobacco sector in which the duty hike in November 15 was counter-productive for tax collections, and noting that a duty hike was already imposed in the second quarter on the brewery sector.

“In addition, we do not expect any changes to the duty structures for gaming companies (casino and NFO subsectors) in 2016,’’ the research house noted.

Meanwhile, the research house added that although the FBM KLCI may be swayed by macro events, for example like the US rate hike, it was still maintaining the year-end target at 1,700 points.