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Relationship Between Government Policies And Investment Essay

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We would like to thank the all people who assisted us in the preparation of this report especially to our lecturer Puan Noor Aishah Mohamad Hamdan.

According to Malaysian Investment Development Authority (MIDA), government policies that maintain a business environment with opportunities for growth and profits have made Malaysia an attractive manufacturing and export base in the region. The private sector in Malaysia has become partners with the public sector in achieving the nation's development objectives. Over the decades, the Government of Malaysia has effectively used the fiscal policy through tax measures and allocation of operating and development expenditures to attained a broad range of macroeconomic objectives such as growth & equity, macroeconomic stability, reform & restructuring such as tax incentives to facilitate reform and structuring of economy, sectored and regional development such as tax incentives and expenditure directed at targeted sectors (Narayanan, 2007). Narayanan (2007) also cited that Malaysia has experienced difficulties in balancing its budget. Therefore in this recent year, Malaysia has becoming run deficit budgets. The slow growth or decline of several sources of revenue has given pause for reflection on the approach to fiscal management. The key to fiscal flexibility is to ensure that the mandatory spending and the size the government is not too large, the fiscal deficit is not structural and public debt level not excessively high. 1.1 Backgrounds

Construction Economics III is aimed to provide an in-depth study of development economics including investment market and property development, preparation of feasibility studies, financing and risk and uncertainty of development works and the influence of government policies on such works.

1.2 Purpose
The purpose of this report is to study and understand the relationship between government policies and investment market, to investigate the effects of government policies to investment market and to forecast possible changes of investor’s decision in property market. It is hoped that with more discussion in this report, it will increase the level of understanding about property investment market. 1.3 Scope

The study for this report focused on the impact of the increase of the oil price in Malaysia on 2nd September 2013 towards property investment market. The policies related to government expenditure and their effects to investment market in general will be discussed. Besides, the importance of these policies in relation to investment market and their influences on investors’ decision especially in property investment will be included.

1.4 Methodology

The data from various sources will analyse. The budget 2014 will be main sources to analyse new policy.


On 2nd September 2013, Prime Minister Datuk Seri Najib Tun Razak announced the Government’s decision to increase the price of RON95 and diesel by 20 sen to RM2.10 and RM2 per litre, respectively, effective on 3rd September 2013, as one of its measures to rationalise subsidies. It expects to save RM1.1bil this year from September to December and RM3.3bil per year in subsidy bills from the exercise, helping to tame the fiscal deficit. The Government has targeted to reduce budget deficit to 4% this year, 3.5% in 2014 and 3% by 2015. This report will analyse the effect of government policy including reducing in fuel subsidy towards investment market especially property.

3.1.1 Fiscal Policy
Fiscal policy is the government’s steps to change the government spending and structure of taxation to influence the level of aggregate spending in the economy. Fiscal policies seeks to reach full employment level and to control inflation. There are three major ways in which fiscal policy affects aggregate demand: Business Tax Policy - Business taxes can change the profitability of businesses and the amount of business investment. Lowering business taxes will increase aggregate demand and business investment spending. Government Spending - Government can directly increase aggregate demand by increasing its spending. Tax Policy for Individuals - Lowering taxes will increase disposable personal income and increase consumption spending. Fiscal policy should be used to increase aggregate demand when an economy is operating at below full-employment levels. If aggregate demand exceeds aggregate supply and output is at full-employment levels, fiscal policy should be used to reduce aggregate demand. According to Bank Negara Malaysia, fiscal policy in 2013 continues to focus on sustaining the growth momentum of the domestic economy in the near term and facilitating the long-terms transformation of the economy, while ensuring the sustainability of public finances. The Federal Government fiscal deficit is expected to reduce from 4% of GDP in 2013 to 3% in 2015 and balanced budget on 2020. To ensure the efficient use of fiscal resources, the 2013 Budget continues to focus on enhancing the productive capacity of the domestic economy. Besides, subsidies have been restructured and only low income earner will get it. Therefore, the low income group who is most affected due to rising oil prices, government will give financial assistance through BR1M. 3.1.2 Monetary Policy

Monetary policy is government policy carried out by the Central Bank to control money supply and interest rates to affect the level of aggregate expenditure to reach level of full employment and controlling inflation. During the inflation problem, government will transact contractionary policy. It is a macroeconomic tool use by the central bank to slow down an economy. Contractionary policies are enacted by a government to reduce the money supply and maximise the spending in a country. This is done primarily through:

1. Increasing interest rates
2. Increasing reserve requirements
3. Reducing the money supply, directly or indirectly

This tool is used during high-growth periods of the business cycle, but does not have an immediate effect. During deflation problem, the government will implement expansionary policies that is increase the government spending and reduce tax rate to increase aggregate spending to combat unemployment. According to Bank Negara Malaysia, monetary policy in 2013 focus on addressing potential risks to inflation and growth. During the 2013, private investment is likely to remain firm, ...

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