OCBC Bank sees decline in Budget 2019 GDP
KUALA LUMPUR: OCBC Bank expects overall expenditure in the 2019 Budget to decline to 19.2 per cent of Gross Domestic Product (GDP) in 2019 from its estimation of 19.7 per cent in 2018.
In a note, OCBC Bank economist Alan Lau said the government’s development expenditure would likely fall by about eight per cent or RM3.5 billion in 2019 from the preceding year mainly due to rationalisation of expenses at the Prime Minister’s Department and cost reductions for megaprojects.
He said the cost savings that
The government will probably also continue to achieve cost savings in other areas except that it would probably take time. Alan Lau, OCBC Bank economist
the government achieved from reviewing the Light Rapid Transit 3 and Mass Rapid Transit 2 projects showed their commitment to reducing expenses.
“The government will probably also continue to achieve cost savings in other areas except that it would probably take time,” he said.
Meanwhile, Lau said other potential expenses that the government could incur include abolishing unnecessary debts that have been imposed on FELDA settlers and introducing alternative measures to address tolls.
Operating expenditure, on the other hand, might be hit by an increased need to hold fuel prices such as RON95 at RM2.20 per litre as the government would likely still have to introduce a blanket subsidy in 2019, given that they might need more time to implement a targeted subsidy programme.
He said a targeted scheme may involve the introduction of a fuel card where measures also have to be put in place to prevent misuse so that non-targeted groups cannot illegally benefit from it.
Lau estimates a blanket subsidy would cost RM7.1 billion for 2019 whilst a scheme targeted at the bottom 40 per cent lowest income households (B40) only would cost RM2.5 billion.
“At the same time, the government will continue to be weighed down by rising emoluments and pensions expenses, which we foresee being at 43 per cent of operating expenditure in 2019,” he said.
On the revenue side, Lau said the government would probably be able to significantly increase revenue but that they would need time to implement any new taxes or await the right time to raise the rates on existing taxes.
He said taxes they could be potentially introduced include a digital tax, capital gains tax, Increase in personal income tax rates, raising corporate tax rates and a soda tax.
“Other than that, a series of other measures the government could consider include introducing an inheritance tax, imposing a higher stamp duty on foreign buyers of property or even increasing the rate of sin taxes.
“However, any changes to the tax system generally can risk giving out an unfavourable perception to foreign investors or encourage more tax evasion or tax avoidance from domestic stakeholders,” he added.