Budget 2019 likely to be belt tightening
Apart from that, the new government has streamlined the functions of the Prime Minister’s Office (PMO) as one of the measures to save administrative costs.
KUCHING: Budget 2019 is highly expected to be a ‘belt-tightening’ budget as the government prioritises on overhauling its fiscal positions to trim the current high debt level.
As at 2017, the official total government debt, lease payments for public- private partnership projects and government guarantees amounted to RM686.8 billion, RM201.4 billion and RM199.1 billion respectively, adding up to form the RM1 trillion debt that the government is currently saddled with.
AllianceDBS Research Sdn Bhd (AllianceDBS Research) in its Budget expectations report noted that the government had implemented several initiatives towards reducing this debt.
For operating expenditure, a 10 per cent pay-cut for all ministers and high- ranking officials, coupled with a reduction in the number of ministry portfolios (25 against 35 previously), has been implemented, given that emoluments make up a large share of operating expenditure.
In fact, the share of emoluments to total operating expenditure has risen from 30.5 per cent in 2014 to 35.8 in 2017, it said.
“Apart from that, the new government has streamlined the functions of the Prime Minister’s Office (PMO) as one of the measures to save administrative costs,” it said in the report yesterday.
“Between 2009 and 2018, the PMO’s budget allocation averaged RM15 billion -- almost three times higher as compared to the 2003-2008 average of RM5.2 billion.
“Furthermore, the introduction of zero-based budgeting method to all its ministries and departments will likely reduce wastages and unnecessary spending.”
Nevertheless, AllianceDBS Research said the effectiveness of any policy lies with its implementation, suggesting that tax collections should continue to be monitored so that leakages can be minimised or eliminated.
“Through all these streamlining and cost- cutting measures, around RM10 billion in operating expenditure could be saved annually. Nevertheless, the government is confident of meeting the 2018 targeted fiscal deficit of 2.8 per cent of total GDP.
Given that Malaysia’s budget has been in deficit since 1998, it is imperative for the government to spend prudently and wisely in order to meet its target of attaining a balanced budget by 2023, the year that the World Bank forecasts Malaysia to achieve high-income nation status.
On the other hand, the reintroduction of SST in place of GST will result in lost revenue of approximately RM19 billion.
According to Bank Negara Malaysia, the reported revenue collection amount stood at around RM106.8 billion for 1H18, slightly over 44.5 per cent of total expected annual revenue collection.
Particularly, GST collections totalled RM18.8 billion in 1H18, around 42.9 per cent of the projected full-year GST collection of RM43.8 billion.
“Therefore, the total collection of GST including SST is only likely to be around RM24.8 billion due to the implementation of zero-rated GST from June to August 2018 – we estimate SST collections to come in at around RM6 billion in the remaining four months of 2018 after the tax holiday period.
“Fortunately, higher oil-related revenue collection could mitigate the impact of the loss in GST revenue collections from the abolition of GST this year. This is in view of rising crude oil prices globally, which is averaging at a YTD price of US$73.1 per barrel.
“In the previous budget, the government had estimated total revenue collection to come in at approximately RM239.9 billion in 2018, based on a Brent crude oil price assumption of US$ 52 per barrel. Of that, 15.7 per cent of total revenue is expected to be contributed by oil-related revenue at around RM37.7 billion.
“Based on our estimates, an increase of US$1 per barrel in Brent crude oil price will result in additional oil revenue of RM300 million,” it said.
“Therefore, the government is likely to collect higher oil- related revenue of around RM6.3 billion.”
Apart from that, AllianceDBS Research said the government is also likely to garner higher dividend payments of RM5 billion from Petronas, Bank Negara Malaysia and other governmentlinked companies (GLCs).
“Meanwhile, the government has recently guided that it will most probably save up to around RM10 billion in administrative costs due to its expenditure rationalisation exercise. Based on the recent developments, we can now expect a higher amount that is in the range of RM15 billion to RM20 billion.
“Overall, given the higher corporate income tax collections, oil related revenue and the government’s expenditure rationalisation exercise totalling up to RM21.3 billion or more, we are confident that the government will meet its guidance of 2.8 per cent targeted fiscal deficit this year.
“However, we expect the government’s revenue and total expenditure in 2019 to amount to RM228 billion and RM273 billion respectively.
“This will result in 2019 fiscal deficit to increase to three per cent of total GDP, in the view of its commitment to repay the shortfall in GST refunds (RM19.3 billion) and unpaid refunds in personal income tax and corporate tax (RM16 billion),” it added.
AllianceDBS Research