PRUDENT but people-friendly budget. That will be the gist of the 2016 Budget to be unveiled by Prime Minister Datuk Seri Najib Razak today.
There will be something for everyone — the middle-class, the bottom 40 per cent of household incomes and the rural folk, finance ministry officials said in a pre-Budget briefing.
But it would not be too generous, given the big drop in government revenue due to sharply lower oil and commodities prices, and the slowdown in global trade and economy, including in Asian powerhouse China.
“It will be a budget that will not disappoint the people, but if you expect a lot of goodies because of the GST, that expectation will not be realistic,” one ministry official said.
But the saving grace would be the Goods and Services Tax (GST) and subsidy cuts, both unpopular with the people but proved to be saviours in these difficult times.
“It will be quite a tough year for every country, especially the emerging economies,” one senior official told the briefing.
“In fact the term ‘challenging’ is understated.”
Najib, in unveiling his seventh but most difficult budget yet as finance minister at 4pm in the Dewan Rakyat, will find it less flexible in trying to pump prime the economy, given tighter government finances.
Good times never last, as the saying goes, but the government’s ability to push through tough measures, such as the GST, has helped mitigate some of the revenue shortfalls.
“Although we have been criticised and maligned that we have put more burden on the people, a scenario without the GST would be a lot worse for the people,” he said.
The people’s well-being will remain as Najib’s priority. There will be additional relief for taxpayers, for example, but there will be no outright personal income tax cuts given the tight financial situation.
Najib is also expected to announce direct and indirect measures to deal with the rising cost of living. For example, he would unveil the opening of more Kedai Rakyat 1Malaysia outlets.
The 2016 Budget was drafted as Malaysia and other emerging economies reel under external economic pressures beyond their control. Officials said volatility of the global economy seems to have surpassed levels during the 1998 Asian financial crisis.
Malaysia, they said, had seen about a 50 per cent drop in government revenue, given the sharp drop in oil price. They said although Malaysia had diversified its sources of earnings in recent years, the 33 per cent contribution from the oil and gas sector was still considered significant, and prevailing low oil prices was affecting the country’s revenue.
Oil prices fell to US$45.20 a barrel on the New York Mercantile Exchange on Wednesday as reports highlighted rising stockpiles adding more to an already oversupply situation in global crude oil.
The 2016 Budget has assumed an average price of US$48 a barrel.
“We may see a prolonged environment of low commodity prices and this is not unique to Malaysia alone,” an official said.
Sources said Petronas’ dividends to the government could drop from RM29 billion in 2014 to RM26 billion this year and to less than RM20 billion next year.
But the officials said GST revenue had exceeded expectations as from about 400,000 businesses, the compliance rate was at a high 90 per cent level.
Without the GST, it is likely that the government’s current account will be a deficit, forcing it to borrow to pay civil servant wages.
Its sovereign ratings too may be downgraded, driving borrowing costs, including for businesses and consumers higher.
Another politically unpopular move, rationalisation of subsidy, has further strengthened the economy in facing the external pressures.
The RM20 billion subsidy charge incurred by the government as recent as two years ago has now been reduced as the government cut subsidies, including for petrol.
But the targeted groups — the needy and the lower-income — will continue to receive subsidies and other government assistance such as BR1M.
Ministry officials said the government, on its part, had also been more prudent in its expenditure, so as to enable the 2016 Budget to spread benefits of the economy to as wide a section of the Malaysian society as possible.
The government will continue encouraging activities to diversify the economy, such as by promoting ventures in the tourism sector and export-oriented manufacturing activities.
It is believed that the government’s study of the possibility of participating in the Trans-Pacific Partnership grouping will weigh in heavily on the opportunities the agreement will present to Malaysian businesses.
Domestically, the officials said fundamentals of the economy remains strong and growth is still on track at between the 4.5 per cent and 5.5 per cent per year. The ministry is confident of achieving at least a 5.0 per cent growth next year.
The fiscal deficit will drop from 3.4 per cent last year to 3.2 per cent this year. It will also show a marginal drop next year.