PUTRAJAYA, Oct 22 (Bernama) — There will be something for everybody in the 2016 Budget especially the lower income group, as well as, the middle class but the people must not expect goodies that are not realistic, a senior Ministry of Finance Official said Thursday.
The was in view of the “extraneous circumstances challenging the economy beyond our control” causing uncertainty and volatility as evident by the sharp drop in crude oil and gas prices and steep decline in the Ringgit, he said.
Although one-third of the country’s income came from oil where prices dropped by as much as 50 per cent, the official gave the assurance the government would not abandon projects that will improve the livelihood of the people.
Despite difficult circumstances, the government had the vision, plan and resources to deliver the benefits to the people,” he said during a briefing on the thrusts of the 2016 Budget to be unveiled by Prime Minister and Finance Minister Datuk Seri Najib Tun Razak at the Dewan Rakyat Friday.
The official also highlighted how the Goods and Services Tax (GST) which was heavily criticised and maligned by numerous quarters, especially the Opposition, emerged as a saviour in contributing to government revenue.
The GST helped to cushion against the impact of the sharp fall in crude oil prices now hovering at about US$51 per barrel. “Without GST, we will be in dire straits,” he said.
He said the Prime Minister would explain, in his budget speech, the importance of the GST and how the revenue from the new broad-based taxation system would be used for the people.
The official said that “incentives would continue to be given to the private sector to boost private investment in key areas and stimulate business activity including in services and tourism,” he said.
“Measures to attract tourists from China, which is a lucrative source of immediate cash, can be improved upon, as well as, medical tourism to woo Arab tourists,” he said.
“We will also spread the benefits (of the GST) to as many sectors as possible and that housing facilities particularly for young people would continue to be provided in the budget.
“The focus of the 2016 budget would be to concentrate on doing the things that matter especially in looking after the well-being of the people.
“There would be no problem in continuing infrastructure projects such as the Light Rail Transit and Mass Rapid Transit projects, as well as, the Pan Borneo highway,” the official said.
Asked whether there would be a reduction in income tax, he said there could be some tweaking to provide relief but the volatile crude oil prices unfortunately don’t allow for such a reduction currently.
With GST, and assuming oil prices had remained at US$80-US90 per barrel, the government would have been financially well-placed to consider a cut in income tax, but under the current scenario, its options were limited.
The domestic economy was affected by the unexpected slowdown in the Chinese economy and the unanticipated hike in interest rates by the Federal Reserve which favoured the US dollar at the expense of other currencies and which exerted immense pressure on the Ringgit.
Besides GST, he said another good thing which the government did was the subsidy rationalisation programme especially for petroleum prices which was continuing to pay dividends in terms of costs savings to the tune of billions of ringgit.
While revenue from crude oil, via contributions from Petronas and other oil firms through taxes and dividends decreased sharply, the good thing going for Malaysia was its diversified economy coupled with strong fundamentals, especially domestic demand which was the key driver for growth given the vagaries in the global arena, he said.
The official said that on its part, the government would exercise caution in its spending, which was why the allocation for the 2016 budget would only be marginally higher than the 2015 budget of about RM260 billion.
He said budget 2016 was premised on a conservative average crude oil price of US$48 per barrel.
The budget’s emphasis would also be on reducing the fiscal deficit, albeit at a slower pace, given the challenges to the economy from the projected 3.2 per cent this year.
He also said Malaysia was on the right growth path with Gross Domestic Product (GDP) projected at 4.8 per cent in 2016 and “this was achievable.”
Asked on the Trans-Pacific Partnership (TPP) trade agreement, he said Malaysia joining up was potentially advantageous as foreign companies especially from China were keen to use Malaysia as an investment base to exploit the expanded market covering 12 economies since Beijing was not a party to the pact.
“Malaysian companies, especially small and medium scale enterprises, should drive exports to new markets such as Canada, Mexico and Chile for products such as palm oil,” he said.
It would take about two years before the TPP is finally implemented as it has to go through various processes including cost benefit analysis, parliamentary debate and approval and thereafter ratification, he said.
The official also said the budget was expected to get favourable response from parliamentarians in view that it continued to be a people-friendly budget although there were numerous financial challenges in drawing it up.