Economic stimulus

2015 TARGET: Government may initiate measures to improve revenue, optimise expenditure

THE government may introduce new measures next year to boost its coffers and improve expenditure to meet the 3.0 per cent fiscal deficit target for 2015, says Minister in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar.

The move will be reviewed by early next year, he said, adding that for this year, Malaysia should be able to meet the targeted fiscal deficit of 3.5 per cent, from 3.9 per cent of the gross domestic product (GDP) in 2013.

“For 2015, apart from the Goods and Services Tax (GST) and expected higher income tax collection from improved compliance, the lower revenue from oil and gas (O&G) will, to some extent, be mitigated by savings in fuel subsidies of about RM11 billion.

“Furthermore, the government can initiate other measures to improve revenue and optimise expenditure in order to meet the 3.0 per cent fiscal deficit budgeted for 2015,” Wahid said in response to Business Times queries on the fall of global oil prices.

He said lower oil prices will result in lower revenue for the government from oil royalty and petroleum income tax.

However, Wahid said, the government has been cutting its dependence on O&G revenue from 40 per cent in 2009 to 31 per cent in 2013. This was done by increasing revenue from other sources.

He said the implementation of GST on April 1 is expected to reduce further revenue contribution from the O&G sector to below 30 per cent, as the country’s revenue base broadens.

The minister also said that the government is likely to review the 2015 GDP forecast when it announces the fourth quarter (Q4) GDP figures early next year.

“When the government set the 2015 GDP forecast at 5.0 to 6.0 per cent, it was deliberately set with a wide range in anticipation of potential external headwinds.

“No one expected oil price to fall by some 40 per cent. We are likely to review the forecast when we announce the Q4 2014 GDP figures.

“But based on preliminary assessment, 3.1 per cent GDP growth, which is the lower end of the current forecast, is possible for 2015,” he said.

It was recently reported that The World Bank, which maintains its 2014 GDP growth forecast of 5.7 per cent for Malaysia, has cut the 2015 growth projection to 4.7 per cent, from 4.9 per cent. This is based on the expected slower export growth and investments in the O&G industry and moderate private consumption in 2015.

Wahid said lower oil prices have both favourable and adverse impacts on the Malaysian and global economies.

He said such price levels are positive for advanced economies and net importers of oil.

Wahid cited a projection by The Institute of International Finance that the recent drop in oil prices is expected to contribute to an additional 0.4 per cent growth to global economy and 0.7 per cent growth to the United States economy. This is because lower oil prices will reduce the cost of production of many goods, which in turn will create more demand and improve profits and income.

“For Malaysia as a net O&G exporter, the impact will be relatively neutral as lower export receipts will be compensated by the positive factors mentioned,” he said.

Wahid said over the years Malaysia has seen lower GDP contribution from the mining (including O&G) and agriculture sectors at only 8.0 per cent each. Currently, the main drivers of the country’s GDP are the services sector at 55 per cent and manufacturing (25 per cent).

He also said that lower oil prices would help tame the increase in inflation due to lower transportation costs and other input costs, especially for businesses.

On the weakening ringgit, Wahid said the local currency has depreciated by some 5.0 per cent against the greenback.

“However, this is not unique to Malaysia as many key emerging market currencies also depreciated against the US dollar over the second half of 2014, especially those of commodity exporters.

“While lower currencies will mean higher import costs, it will also result in our products becoming more competitive,” he said, adding that the tourism sector is expected to benefit from the weaker ringgit.