Saturday, 28 October 2017

Guide to the economic report and budget 2018.

The budget in a nutshell

Wednesday, 25 Oct 2017

AllianceDBS Research chief economist Manokaran Mottain said Budget 2018 would see the introduction and expansion of initiatives to support private consumption growth, while maintaining the commitment towards fiscal consolidation

PETALING JAYA: Every year from around the start of October, the media carries stories on the annual tabling of the Federal Government’s budget to inform and get a feel for what the ground needs.

Many people struggle to make sense of the reams of information from the news reports and expert opinions, especially on the economy, that come out over the weeks prior to the tabling of the budget, usually on the last Friday of October.

The information and stories include what will be published in the Economic Report, which lays out the state of the economy for the current year and forecasts for the coming year.

The budget showcases the Federal Government’s initiatives and measures for the upcoming fiscal year. Information from the Economic Report will be made public as the budget is being tabled.

AllianceDBS Research chief economist Manokaran Mottain said Budget 2018 would see the introduction and expansion of initiatives to support private consumption growth, while maintaining the commitment towards fiscal consolidation.

According to him, the Government will likely set a growth target of at least 5% for 2018 vis-a-vis the projected range of 4.3% to 4.8% GDP growth for 2017.

The Government will also likely revise the 2017 growth projection, following an impressive performance of 5.7% GDP growth in the first half of this year, thanks to improved conditions both domestically and externally.

Inflation remains a concern, as it will drive up the cost of living and cap consumer spending in the country. For 2017, inflation, as measured by the rise in the consumer price index (CPI), will likely be in the range of 3% to 4%.

The Government will likely project CPI to be below 4% next year.

Improving global crude oil prices, an important contributor to the Government’s revenue stream, will be good news, as this would mean more income from petroleum-related taxes and dividend income from Petroliam Nasional Bhd.

Revenue projections could rise for Budget 2018 on higher crude oil prices when compared with the oil price assumption of US$45 per barrel for this year.

Because the general election will be held next year, economists expect spending to be ramped up. Operating expenditure will likely increase on higher civil servant increments and bonuses in addition to other goodies, while development expenditure to support economic growth will also be expected to increase on the implementation of various infrastructure projects.

Manokaran expected development expenditure allocated for next year to accelerate the implementation of ongoing infrastructure projects such as the East Coast Rail Line, the Pan-Borneo Highway, the Kuala Lumpur-Singapore high-speed railway, the Mass Rapid Transit Line 2, and the Light Rail Transit Line 3. Such spending will benefit construction companies.

Despite increased expenditure, economists said the Government would likely remain on track with fiscal consolidation.

For Budget 2018, Manokaran expected budget deficit to be lowered to 2.8% of GDP, compared with the projected 3% of GDP in 2017, thanks to higher revenue.

Manokaran said Budget 2018 would include measures to contain government indebtedness below the self-imposed limit of 55% of GDP. He expected government debt-to-GDP to be contained within 53% of GDP for this year.

Meanwhile, the Government’s contingent liability level will remain steady at around 15% of GDP next year, as it has been since 2013, despite the increase in the infrastructure bill.

Malaysia’s standing as the second-largest producer of CPO means that the Government’s projections for CPO prices will also be closely watched because this will have an impact on export revenue.

Manokaran expected prices to remain range-bound next year compared with the estimated average of RM2,500 per tonne this year.

Given the country’s reliance on exports, an improving external trade landscape driven by demand for manufactured products next year would mean higher exports growth compared with the 2.5% growth this year, he pointed out.

Lastly, Malaysia’s current account surplus next year is expected to improve marginally on expectations of higher surplus in the goods account.

The Government has projected the country’s current account surplus to narrow to around 0.5% to 1.5% of gross national income (GNI) in 2017 from 1% to 1.5% of GNI in the preceding year on lower surplus in the goods accounts and continued deficit in the services and income accounts.



Lim Sue Goan is deputy executive chief editor of Sin Chew Daily.

Time to banish outdated budget model
October 26, 2017

Writer says country will face another dilemma if government distributes candies to please voters instead of allocating resources for creation of a better tomorrow

By Lim Sue Goan

Year after year, the annual budget has been working on the model of government allocating a whole year’s resources as per its revenue.

The Budget 2018 to be tabled in the Dewan Rakyat tomorrow will be the last budget before the general election, and it is therefore anticipated that the government will carry on with the same old modus operandi this year and may even allocate a bigger chunk of resources to specific target groups.
The government’s tax revenue is expected to increase by 4% to RM228.5 billion next year while total expenditure is expected to top RM270 billion for a 21st consecutive year of budgetary deficit.
How will this RM270 billion be distributed?

Operating expenditure will have the lion’s share at RM223.6 billion. Total remuneration for the country’s 1.6 million-strong army of civil servants stands at RM77.4 billion this year, while 775,000 retired civil servants will get RM23.2 billion, taking the total spent on civil servants to at least RM100 billion, with the remaining sum going to department operating expenses.
Development expenditure is expected to stay at RM46 billion next year.

Health Minister S Subramaniam has complained that the RM23 billion allocated to his ministry has not been enough, while other government departments are making the same requests for higher allocations.

For example, Defence Minister Hishammuddin Hussein has said he would arrange for military chiefs to meet Prime Minister Najib Razak to propose a higher defence allocation.

Meanwhile, Cuepacs has been rather unhappy with the RM500 annual handouts for civil servants over the past several years, and has been asking the government for at least one and a half months of bonus and additional allowances for urban civil servants.

The government has forked out RM1.19 billion on RM500 financial assistance for civil servants, and if it were to offer 1.5 months of bonus to each of them, the expenditure will instantly shoot up by billions of ringgit.

Indeed the country’s resources are limited while demands for more allocations continue to be heard.
If the government allocates more for civil servants, government departments and the Bottom 40% group (B40), it will mean less is available for those in the M40 group.

It would also not be surprising if many departments see their wishlists unfulfilled.

It is anticipated that the government will continue to offer tax rebates to please the M40 in a bid to relieve their financial burden.

But such assistance will not significantly reduce the financial pressure of the people in view of the skyrocketing prices of goods.

The CPI rose 4.3% in September, squeezing the people’s buying power and further dampening market sentiment. As a result, vehicle sales plummeted 21% month-on-month in September.
Going further, this will depress the overall market in the long run, and what the national economy needs most at this moment are some real solutions that will take the country out of the current doldrums.

Unfortunately, our leaders have hardly seen this problem and are continuously basking in the feel-good atmosphere of sustained economic expansion and salary growth.

The PM has quoted EPU data in saying that the monthly household income of B40 jumped by a robust 76% from 2009 to 2014, and almost 60% for the M40.

The government’s economic development strategy has been established upon the multiplier effects from mega projects such as Klang Valley MRT, Greater Kuala Lumpur, ECRL, KL-Singapore HSR, Pan-Borneo Highway and Digital Free Trade Zone projects. But, we cannot solely depend on these infrastructural projects.

The country’s development needs to be more all-rounded.

Indeed, we need a clear and targeted economic blueprint around which the government’s fiscal budgets must be evolved so that our resources will be more effectively utilised to achieve our long-term goals and aspirations.

However, all that we have seen in past budgets are chaotic and clueless pluses and minuses. For instance, allocations for the Prime Minister’s Department have been increased at the expense of the higher education ministry.

Education is a key factor that will thrust the nation forward and by right more resources should be channeled here and other initiatives that will lift the country’s overall competitiveness, such as Industry 4.0 and artificial intelligence.

We will be plunged into another dilemma very soon if the government distributes candies just to please some voters instead of allocating the resources, including GST collection, for the creation of a better tomorrow.

The antiquated model built upon political considerations has long been outdated. We must have brand new policies and mentality or we will remain stagnant always.

Lim Sue Goan is deputy executive chief editor of Sin Chew Daily.

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