Business

Thursday October 22, 2009

Budget may focus on long-term fundamentals


PETALING JAYA: The thrust of Budget 2010 will likely be on strengthening long-term economic fundamentals by addressing the problem of persistent budget deficits and pursuing measures that will help build a strong foundation for an innovation-led nation.

Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias said in a pre-budget note that the Government would likely unveil more aggressive measures to deal with persistent deficits in the Federal Government budget.

He said that in supporting an innovation-led economy, the Government would put more efforts in cultivating an entrepreneurial culture by focusing on enhancing entrepreneurial skills among new entrants in the labour market.

Nor Zahidi said the budget would also reflect a delicate balancing act by the Government as it performed the difficult task of supporting the economy at a time of a fragile global recovery while trimming budget deficits, mainly through reduced operating expenditures.

Nor Zahidi Alias ... ‘Budget deficits are now mainly attributed to escalating operating expenditures.’

He said issues that would have strong bearing in the upcoming budget included reducing fiscal deficits – expected at more than 7% of gross domestic product (GDP) this year – to between 6% and 7% of GDP in 2010 via aggressive trimming of the operating expenditure.

“Budget deficits are now mainly attributed to escalating operating expenditures, which grew by a hefty 24.7% in 2008 compared with an average expansion of 10.7% in the past 19 years,” Nor Zahidi said, adding that the bulk of the recent increase was due to an upsurge in subsidies.

He said subsidies would be cut to lessen the burden on the Federal Government’s budget besides reducing the misallocation of resources in the economy.

Subsidies on petroleum could be further reduced in an effort to cut operating expenditures in view of the rising price of crude oil, he said.

“This simply means that even the price of RON95 may increase slightly in the near future.

“Similarly, prices of certain items which have been heavily subsidised by the Government will be left to market forces,” he added.

He said there could be an increase in the excise duty for alcohol since the industry had been spared any hike in the past three years while there could also be an increase in gaming taxes.

Nor Zahidi said there was “a critical need to widen the sources of revenue” as Malaysia was too dependent on oil.

He said a new source of revenue could be the goods and services tax (GST).

“While the GST is not likely to be implemented in the near term in view of its possible negative impact on the economy, the timeframe for its implementation may be announced.”

Nor Zahidi said there was a likelihood that the development expenditure would continue to expand in 2010 as the Government intended to support the country’s fragile economic recovery.

“Based on the amount that has not been spent under the Ninth Malaysia Plan (9MP), total development expenditure will be in the region of RM56.7bil,” he said.

However, Nor Zahidi said due to concern over the persistent budget deficits, the upcoming 10th Malaysia Plan (2011 to 2015) could see development expenditure trimmed to an average of RM36bil per year from an average of RM46bil under the 9MP.

He said measures that were likely to be proposed in the budget included moves to increase disposable income in order to boost consumer spending.

This would include higher personal relief for taxpayers which currently stood at RM8,000 per person, higher child relief and voluntary but limited withdrawal of Employees Provident Fund dividends, he said.

  • E-mail this story
  • Print this story