NAJIB'S GOOSE IS COOKED: WITH OIL PRICES AT NEW LOWS, THERE IS NO FISCAL ESCAPE FOR HIM

Control rising prices and stop wastage.

These are the two most repeated appeals to the government as Malaysians brace themselves to face a grim 2016.

The recent announcement by Prime Minister Najib Razak that the government will be forced to amend its annual budget for the second time in two years, as the national revenue decreases due to dropping global crude oil prices, has been seen as a bad omen to a nation which is already struggling to make ends meet.

Najib, who also Finance Minister, said that Budget 2016 – tabled on Oct 31, last year – had been drafted based on assumed crude oil prices of US$48 (RM211) per barrel, whereas recent prices are in the region of US$33 (RM145) per barrel.

At US$48 per barrel, revenue from oil was projected to make up 19.7 per cent of total federal government revenue which amounts to RM225.67 billion.

Now that oil hovers at US$33 per barrel, revenue would be reduced.

There aren’t many policy options left for Putrajaya.

It cannot increase its debt levels very much from the current level. It cannot spend its way out of a slowdown if Malaysia were to keep its target of a fiscal deficit of 3.1 per cent.

An increase in debt levels and raising the fiscal deficit could cause the international rating agencies to downgrade Malaysia.

Collection from the Goods and Services Tax (GST) cannot be expanded very much from the target of RM39 billion this year unless the tax rate of 6 per cent is increased. This is something that would not go down well with the people.

An option left is to tighten the belts further on the operating and development expenditure that amounts to RM260.7 billion for this year.

This would require close scrutiny on government spending. Making sure that there is no leakage in handling of public funds should now be the sole focus of the changes to the budget.

Najib is expected to chair a Fiscal Policy Committee to discuss these limited options to re-calibrate Budget 2016.

Second Finance Minister Ahmad Husni Hanadzlah said the recalibration of the budget would entail maximising the nation’s revenue and they were looking at government resources and assets.

“We (government) have our own companies. So, we need to look into their prospects,” he said.

Ahmad Husni noted that other than the prime minister, the special meeting would be attended by Bank Negara Governor Zeti Akhtar Aziz and other related ministers.

He said the Finance Ministry was currently conducting a simulation based on the oil price at US$35 per barrel to determine its impact on government revenue this year.

Ahmad Husni said the Finance Ministry would work with the Inland Revenue Board and the Royal Malaysian Customs Department to determine the best strategies to maximise government income.

This statement alone may denote that some mechanism which existed before may now vanish or prices of certain items may increase further.

Other adjustments to Budget 2016 would involve, among others, measures to optimise expenditure, taking into account the role of government-linked companies (GLCs) and having the government continue to champion the well-being of the people.

There may not be a silver lining at this point but am sure all Malaysians hope that the very real burden of the rising cost of living be reduced.

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the government needed to be realistic and, to a large extent, the economic cycle has to be considered when making the assumption.

“So far, the government has taken the necessary steps to cope with such challenges by reducing dependence on oil-related revenue,” he said recently.

He said the share of oil revenue’s contribution to the government has declined from 41 per cent in 2009 to an estimated 14 per cent in 2016.

On the implication of budget adjustments to Malaysia’s fiscal deficit target this year at 3.1 per cent, Mohd Afzanizam said: “Slightly higher revision would not be too bad for development expenditure; we need some catalysts to ensure economic growth will not be severely affected.”

Agriculture and Agro-based Industries Minister Ahmad Shabery Cheek said he will make sure the incentives for small farmers and fishermen will not be affected in the budget adjustments.

He said these incentives should be maintained to help farmers and fishermen face high costs of living.

While the economic downturn is unavoidable at this point, Malaysian Trades Union Congress (MTUC) president Mohd Khalid Atan said whatever revisions carried out should include efforts to correct any weaknesses in the current budget, especially regarding the interest of the needy.

In response to Najib's claim that the Goods and Services Tax (GST) is the “country’s economic saviour,” especially in terms of revenue earned by the government, Khalid said: “Even if the aim of GST is to improve the revenue of the government, you should not do it at the expense of the people.”

What is interesting is that when the crude oil prices increased in some months of 2015, almost all traders raised their prices claiming that the increasing oil prices had made their goods more costly, but now, with the fall in oil prices, there does not seem to be any reduction in prices present.

These traders would now have a bigger profit margin or a better excuse. - http://theantdaily.com/