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Expectations running high ahead of Budget 2019

savemalaysia
Publish date: Sun, 28 Oct 2018, 06:52 PM

Over the past few months, the Pakatan Harapan government has been making statements to manage the expectations of the electorate ahead of Budget 2019. Many statements have been made about the financial constraints and high debt inherited from the Barisan Nasional administration, and that the rakyat must be prepared for some “painful” changes ahead, including the likelihood of new taxes.

What are your views on how the government is attempting to manage expectations ahead of Budget 2019, and how do you expect Pakatan Harapan to handle its very first Budget?

Nungsari: The budget is a one-year plan. It is a tool of fiscal policy which contains both the expenditure side, and the revenue side. Most of the time, people only look at the expenditure side - they do not care too much about the revenue side. This time around, however, we will be looking at both sides of the budget. To me, the five-year plan is more important than the budget, because it sets the direction, while the budget is just for a one-year period. I think the government has laid down some information in the five-year plan to soften the ground for the budget. They have indicated some broad numbers, suggesting there will be a revision downwards for development expenditure and operating expenditure, among others. They are already trying to manage the expectations. There is ongoing debate about whether the budget deficit matters or not, but either way, there needs to be some discipline in spending. We must also look at more imaginative ways to bring in revenue, after the abolishment of the goods and services tax (GST). When you look at distributional policies, tackling inequality for example, the government’s instrument has always been the expenditure side of the budget, rather than the taxation side of the budget. We are beginning to hear some arguments about using the revenue side - using taxation as a fiscal tool to achieve distributional outcome.

I think having constraints is good, because it forces you to be more innovative. One of the constraints we have is the existing commitments on the expenditure side, with emoluments making up over 70% of the operating budget. If interest rates firm up, and we are operating at a deficit, all refinancing costs go up as well and this will eat into the operating expenditure. There isn’t much room left for the Finance Minister to work with.

Lee: It will be good for the market if they do not introduce new taxes. Let us look at the advantages and disadvantages that the government has, going into Budget 2019. First, the advantages.

The country’s economic fundamentals are still solid. The price of crude oil has improved. In the previous budget, the average oil price assumption was US$52 per barrel. This time, the government is estimating the budget allocation based on an average crude oil price of US$70 per barrel, although prices are at about US$80 currently. The government gets about RM300mil for every US$1 increase in the price of oil. Dividends from Petronas are also higher, from RM16bil to RM24bil – it could be even higher than this. All this helps provide a buffer for the RM23bil shortfall in revenue due to the abolition of the GST. Exports, on the other hand, have grown about 7.3% during the first seven months of the year. The economy is still growing.

Now, the disadvantages. We saw a surge in consumer sentiment and business confidence right after the election, but the latest numbers show that this has now normalised. Globally, there are still trade tensions, rising US interest rates, and capital outflows. Also, as the government has been telling us, we have limited fiscal space. There could be a two-year period of adjustment on the government spending programme. They may not be able to roll out all the big projects, but are continuing with the ongoing projects with costs slashed.

All this will keep the economy growing, but it may not be as robust as we are used to seeing. I believe this will be a lean budget, but this doesn’t mean it will not have measures to support the targeted industries and households. We just should not hope for too many goodies.

Gomez: I have a lot of sympathy for Finance Minister Lim Guan Eng based on what he has inherited from the previous administration.

Clearly, the situation is quite bad, and I must say that he, and his ministry, have been doing a commendable job in terms of trying to clean up the situation. His role is to get the budget back on track.

When I looked at the mid-term review, I thought it would give us an idea about how the government is preparing the ground for the budget. The mid-term review should tell us what the major structural problems are, and how they are going to be addressed. I did not see that preview.

Among the fundamental issues I was hoping to see detailed in the mid-term review was on education. The mid-term review was quite scathing in its discussion on the quality of education in Malaysia.

This is something the government has to redress in the upcoming budget. One of the pertinent issues is on funding for research. The mid-term review talks about the need for collaboration between universities and industries, and for this, you need funding. I am wondering how much expenditure is going to be put aside for education if this is indeed a major structural problem that they have identified.

Secondly, Pakatan Harapan stressed many times in the run-up to the election that it will plug leakages. If you plug leakages, you can save a lot of funds that can then be channelled into development expenditure.

To plug leakages, you must look into the GLCs. These are issues we have to redress because investor confidence is dipping. If these issues are not addressed in the budget, then we are going to have a serious problem in terms of regaining investor confidence. 

 

https://www.thestar.com.my/business/business-news/2018/10/27/expectations-running-high-ahead-of-budget-2019/

 

Discussions
Be the first to like this. Showing 5 of 5 comments

newbie4444

Why new tax? Cut expenses not preferable?

2018-10-28 20:44

KLCI Going Holland

newbie4444 revenue shortfall due to tax holiday from 0% of GST, now need new taxes to cover back the deficit, cut expenses not enough!

2018-10-28 20:45

newbie4444

New tax means bad for stock market?

2018-10-28 20:47

KLCI Going Holland

waliao, you think leh, where got more tax good for stock market de? See US, Donald Trump tax cut that's why their Dow Jones can go all time high mah

2018-10-28 20:49

optimusprimeXV

PH ways of managing expectation is to under promise over deliver.. expect surprises in budget 2019

2018-10-29 06:30

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