RAM: Govt likely to miss 2016 fis­cal deficit tar­get

> Rat­ing agency ex­pects gap of 3.3% to gross do­mes­tic prod­uct against goal of 3.1%

The Sun (Malaysia) - - SUNBIZ -

PETALING JAYA: The gov­ern­ment is likely to miss its fis­cal deficit tar­get of 3.1% of gross do­mes­tic prod­uct (GDP) for 2016, mainly due to rev­enue short­falls, said RAM Rat­ings.

The rat­ing agency now ex­pects a 3.3% fis­cal deficit for the year.

How­ever, it said this is a con­ser­va­tive es­ti­mate as oil prices are now higher than the gov­ern­ment’s US$30 to US$35 per bar­rel as­sump­tion, and the gov­ern­ment has the flex­i­bil­ity to tap into Petronas’ dis­tributable prof­its in ex­cess of RM350 bil­lion.

“Judg­ing from its pol­icy track record, we see a higher like­li­hood of in­creased gov­ern­ment ex­pen­di­ture in 2017 in the leadup to the gen­eral elec­tion and as global con­di­tions re­main vo­latile. These fac­tors are bal­anced by con­tin­ued eco­nomic growth which may sup­port fis­cal rev­enues,” RAM said in its Bud­get 2017 com­men­tary yes­ter­day.

Mean­while, Malaysian Rat­ing Corp Bhd (MARC) is of the view that Bud­get 2017 will con­tinue to fo­cus on ad­dress­ing the de­clin­ing rev­enue, sus­tain­ing the fis­cal po­si­tion, sup­port­ing eco­nomic growth and as­sist­ing the rakyat in deal­ing with the ris­ing cost of liv­ing.

“Due to per­sis­tent an­nual fis­cal deficits, the gov­ern­ment will likely main­tain the deficit tar­get at circa 3% of gross do­mes­tic prod­uct (GDP) in 2016 and 2017. If this proves to be the case, then cost-cut­ting mea­sures will re­main a prom­i­nent fea­ture in Bud­get 2017,” it said in its re­port “Pre-Bud­get 2017: Ac­cel­er­at­ing Growth, En­sur­ing Fis­cal Pru­dence, En­hanc­ing Well-be­ing of the Rakyat”.

RAM ex­pects a mar­ginal pace of con­sol­i­da­tion in Bud­get 2017 and a likely re­vi­sion of the gov­ern­ment’s medium-term fis­cal frame­work (2016/2018) fis­cal deficit tar­get of 2.7% of GDP.

It said the gov­ern­ment may ex­plore other rev­enue sources such as cap­i­tal gains tax on in­vest­ments, taxes on div­i­dends and in­her­i­tance tax, in or­der to achieve its longterm fis­cal bal­ance tar­get by 2020.

The gov­ern­ment’s debt level is ex­pected to reach 56.1% of GDP by end-2016, ex­ceed­ing the self-im­posed tar­get of 55% of GDP, which will pose a chal­lenge for the coun­try to re­duce the debt to GDP ra­tio to be­low 45% by 2020.

Al­though fis­cal con­sol­i­da­tion has slowed rel­a­tive to the mo­men­tum in 2009-2015, RAM said it is not ex­pected to weigh on Malaysia’s global- and na­tional-scale sov­er­eign credit rat­ings of gA2 and AAA, re­spec­tively.

MARC also noted that a slight de­te­ri­o­ra­tion in the gov­ern­ment’s bal­ance sheet will not cre­ate an overly neg­a­tive per­cep­tion among credit rat­ing agencies and in­vestors in gen­eral.

RAM ex­pects a peo­ple-friendly Bud­get 2017 with mea­sures such as ex­pan­sion of BR1M cash trans­fers, per­sonal in­come tax ad­just­ments and im­prov­ing the avail­abil­ity of af­ford­able hous­ing.

Per­sonal in­come tax ad­just­ments could come in the form of a broader in­come bracket at a lower tax rate, lower tax rates across the in­come spec­trum (while main­tain­ing a pro­gres­sive tax struc­ture), and in­creases in types of and lim­its on tax de­duc­tions.

In or­der to boost home own­er­ship among the mid­dle-in­come group, poli­cies to en­cour­age pri­vate sec­tor de­vel­op­ers to in­crease the sup­ply of af­ford­able homes will likely see a re­turn in the bud­get.

RAM said an ex­ten­sion of the pe­riod al­low­ing re­duced EPF con­tri­bu­tions (that com­menced in April 2016), sched­uled to con­clude by end-2017 is ex­pected while an ex­pan­sion of the list of GST ex­empt or ze­rorated items will be “po­lit­i­cally palat­able”.

It said while on-bud­get devel­op­ment spend­ing may be cur­tailed to keep the fis­cal bal­ance man­age­able, off-bud­get sources of fi­nanc­ing are an­tic­i­pated to con­tinue to meet devel­op­ment tar­gets.

“Given the slow­down in eco­nomic ac­tiv­ity, labour-ori­ented poli­cies may be in­tro­duced. This could come in the form of ex­pan­sion of sup­port for the unem­ployed and in­creased in­cen­tives for skills re­train­ing and job cre­ation,” it said.

MARC high­lighted that in or­der to sus­tain eco­nomic growth, pri­vate in­vest­ments need to be fur­ther sup­ported with a sug­ges­tion of ex­tend­ing the pe­riod for the spe­cial rein­vest­ment al­lowance to at least six years.

The bud­get is also ex­pected to fo­cus on al­le­vi­at­ing the fi­nan­cial bur­den on the mid­dle­and lower-in­come group by ad­dress­ing the ris­ing cost of liv­ing. Hence, Bud­get 2017 is likely to in­clude mea­sures to curb ex­ces­sive in­creases in prices of ne­ces­sity goods.

On the hous­ing is­sue, MARC said it is worth con­sid­er­ing the pos­si­bil­ity of al­low­ing first-time home buy­ers to with­draw more than the cur­rent 30% from the Em­ploy­ees Prov­i­dent Fund Ac­count 2.

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