As the Malaysian economy gets hit by a slowing global economic environment, declining commodity prices, rising inflation and a plunging ringgit, the Budget for 2016 just announced by the Prime Minister is long on grandiloquence and short on substance.
While the Prime Minister praises his Government for its far-sightedness to introduce the Goods & Services Tax (GST) as the income from the new tax will make up for the loss of revenue from the oil and gas sector.
The reality is Malaysians, particular the middle and lower income population are now burdened with coughing up RM39 billion of GST relative to the loss of RM17.5 billion from the Petroleum Income Tax.
In comparison, the Sales and Services Tax collected in 2014 amounted to only RM17 billion. This means that Malaysians have to suffer an increase in taxes by a whopping RM22 billion.
While the taxes paid by the man-on-the-street have been increased drastically, the Federal Government has failed to increase its prudence on expenditure. As an example, the budgeted expenditure for ‘Supplies and Services’ has been maintained at RM36.3 billion for 2016 when it was only RM20.8 billion in 2010. Why has this provision increased by 75.4% in just 5-6 years?
The consequence in the failure of the Federal Government to be prudent in spending can be reflected in the increase in Federal Government debt from RM582.8 billion in 2014 to an expected RM627.5 billion by the end of 2015. The increase in Federal Government debt by 7.7% also significantly outpaced the growth of Malaysia’s GDP of only 4-5% per annum.
Despite the above, Dato’ Seri Najib Razak has embellished his budget announcement with several mega project announcements including RM28 billion for the proposed MRT2 line, the Pan Borneo Highway and other infrastructure projects. Besides the fact that these projects were just recycled announcements from last year’s 2015 Budget, the Finance Minister forgot to mention the fact that these projects are funded by off-budget financing which isn’t reflected in the official budget.
These off-budget measures make a complete mockery of the Prime Minister’s boast that the Budget deficit will be further reduced from 3.2% in 2015 to 3.1% in 2016. This is because the projected deficit does not take into consideration the off-budget expenses funded by government guaranteed borrowings will ultimately be borne by the Federal Government.
Based on the Federal Government Financial Statements 2014, the contingent liability of the Federal Government arising from these Government guarantees will increase from RM157.5 billion in 2014 to RM172 billion in 2015. The resulting 9.2% increase is at an even faster than the rising Federal Government debt. This shows that the Government is shifting an even larger percentage of expenditure to “off-budget” to hide its inability to keep a lid on its expenditure.
Finally, for all the language of bravado peppered in the entire Budget speech, Dato’ Seri Najib Razak failed to deal with the key issues which has shattered domestic and international confidence in his administration. The Prime Minister did not see it fit to take on the massive elephants in the room, that is the RM42 billion 1MDB scandal and the RM2.6 billion purported “donation” into his personal bank account which also involved a Finance Ministry subsidiary, SRC International Sdn Bhd.
The Federal Government has already extended an emergency RM975 million in February this year, a “letter of support” to obtain a US$150 million loan from Bank EXIM and indemnified International Petroleum Investment Corporation (IPIC) for a US$1 billion advance to 1MDB. The inability of 1MDB to repay its debts and the realisation of the above contingent liabilities will have serious consequences to the Government finances and will naturally create a negative domino effect to the rest of our economy.
Hence the failure to tackle the extremely damning and damaging allegations against 1MDB and provide a credible plan for the Government against all 1MDB contingencies, the 2016 Budget will not only fail to lift local and international investor confidence, it will be another non-event which will soon be overshadowed by the multi-billion ringgit scandals of Najib’s administration.