I decided to look at some numbers and back of the envelope calculation, I found a RM22 bil 'hole' or deficit.
No, I am not even talking about the annual budget deficits at over RM30 bil.
I believe we are short of RM22 billion for 2016 just by looking at the Government's revenue which will be affected as a result of GST and crude oil prices, ceteris paribus.
And I hope the Government is aware of this. I stand corrected.
- This year, GST revenue is expected to contribute RM23.3 billion (that's what the Government said before so many other things were exempted from GST)
- And with GST in place, we must not forget that the Government has agreed to forego some revenue.
- The abolished Sales and Services Tax gave us RM17.2 billion last year.
- The Government announced that individual income tax rates will be slashed by 1-3 percent. Let's just assume it is a 1% reduction, that's estimated to be a loss of revenue of RM260 million.
- Companies will enjoy a 1% tax reduction. That's another RM728 million gone.
- The net gain from GST implementation stands at no more than RM5 billion.
- The Federal Government's dependence on oil has been declining from RM64.2 bil or 40.2% of total revenue in 2008 to just RM67 bil or 29.7% of total revenue in 2014.
- But note that in 2014, Brent Crude oil averaged at USD100 per barrel.
- However in 2015, the average Brent crude oil price is expected to be at USD61 per barrel. That's a 40% drop.
- PETRONAS' contributions to Government is calculated based on previous year's price, ie in 2016, dividends are calculated based on 2015 crude oil price.
- If we assume that crude oil prices throughout 2016 and dividends are down by say 40%, that means the oil revenue to Government will also be down by 40%.
- That's approximately RM27 bil.
- The Government's tax revenue has always been enough to cover operating expenditure but never enough for development expenditure - agricultural subsidies, grants for smallholders, build schools and roads, etc.
- In the past 5 years, the Government's budget deficit averages at around RM36.5 bil, all due to if not mainly because of borrowings for Development Expenditure.
- Now with GST and lower crude oil prices, the Government stands to gain an extra RM5 bil from GST policy but face a shortfall of RM27 bil from petroleum revenue - in net terms, that's a RM22 bil hole.
- This hole could be bigger if GST revenue targets are not met.
- So where's the money going to come from?
- Does it mean the Government have to slash the development expenditure budget? I don't think so. This affects a lot of votes especially in rural areas or states such as Sabah and Sarawak.
- Can the Government afford to cover this with borrowings? I am not sure.
- RM22 bil is approximately 2 percent of GDP. Malaysia's 2014 debt to GDP ratio closed at 53% in 2014 and we have a debt ceiling of 55%.
Perhaps, it is time for GLCs to pay some dividends, if they are making money and not giving extra headache to the Government.
We'll see. I am looking forward to October when the Government tables the Budget 2016.