Too much cheap politics going around these days. The latest being accusations made on the budget adjustment for 2016 to imply bad economic management on the part of government.
During the 1999-2000 financial and political crisis, Tun Dr Mahathir administration too re-look at the budget. Anwar introduced severe austerity measures that affected business and economy. Subsequently, Mahathir had to "intervene" and the rest is history.
Anyway, that is water under the bridge. The point is that it is not only prudent but an honest government to readjust the budget in view of changing economic variables and should it be necessary, bite the bullet.
A government in-denial or opportunistic politics will blame others and talk of past glories to deceive the people from the hard realities of the present.
Budget adjustment is commonly done by any honest government. So it is not only sickening and cheap politics act to take potshot at the budget readjustment but it just shows plain lack of intelligence!
The Star Sunday Editorial explained:
The Star SaysConsistent with this blogger's long term view to plug the wastage and holes in public spending. For a start, why do University organise seminar or convention at hotels when they have abundance of lecture halls, classrooms and living quarters?
Sunday, 10 January 2016
Tighten the belt, plug the leakages
Malaysia is not alone in re-looking at the budget for this year. Saudi Arabia, the world’s largest oil producer is reviewing its financials and also restructuring its economy.
Towards this end, Saudi Arabia is looking at listing Saudi Aramco, a move that would allow the government to monetise its oil reserves and increase transparency on the national oil company.
The listing of Saudi Aramco is estimated to create a company worth trillions, far more than Apple, which holds the coveted position as the most expensive company valued at US$543bil (RM2.4 trillion).
If Malaysia were to follow the Saudi example, we should be looking at listing Petronas. But that is not likely to be on the agenda of Prime Minister Datuk Seri Najib Tun Razak when he handles the revisions to Budget 2016.
Najib is a seasoned hand when dealing with budget revisions. A few months after he was appointed as Finance Minister in September 2008, the world was in a crisis due to the financial meltdown in the United States, threatening a shutdown of the global banking system. Soon, Najib announced some measures in a supplementary budget to stimulate the economy in 2009.
In January last year, Najib announced a revision to the budget when the price of Brent Crude fell 50% from a high of US$115 (RM504) per barrel. He took the knife to the Government’s operating expenditure. He deferred certain programmes such as the National Service, trimmed expenses on items such as air travel and the use of professional service firms.
A year later, Najib is in a similar situation as the price of oil is averaging US$33 (RM145) per barrel, which is way below the government estimates of US$48 (RM211) per barrel in Budget 2016.
At US$48 per barrel, revenue from oil was projected to make up 19.7% of total Federal Government revenue which amounts to RM225.67bil. Now that oil hovers at US$33 per barrel, the revenue is lower. How the Government makes up for the revenue shortfall would become apparent when the Prime Minister makes adjustments to Budget 2016 in the coming days.
At a glance, there aren’t many policy options left for Malaysia. It cannot increase its debt levels very much from the current level. It cannot spend its way out of a slowdown if Malaysia were to keep its target of a fiscal deficit of 3.1%.
An increase in debt levels and raising the fiscal deficit could cause the international rating agencies to downgrade Malaysia.
Collection from the Goods and Services Tax cannot be expanded very much from the target of RM39bil this year unless the tax rate of 6% is revised up. This is something that would not go down well with the people and the Government knows it.
An option left is to tighten the screws further on the operating and development expenditure that amounts to RM260.7bil for this year. This would require close scrutiny on government spending.
Few countries can pride themselves of a system where there is no leakage in handling of public funds.
The criteria in managing public funds would be to undertake measures to minimise the leakage.
For Malaysia, there are no clear estimates on the leakage. The closest indication on the matter was based on a statement by a top government official last month. He was reported to have stated each ministry was instructed to come up with ideas to reduce leakage in public expenditure. This move could save about 30% of the cost, he said.
In our current predicament, even a 10% saving of the RM260.7bil in expenditure would be enough to make up for the shortfall in oil revenue. But, this would require scrutiny in public handling of funds.
To understand the Saudi austerity drive, read the CNBC report below:
Saudis unveil radical austerity programSimeon Kerr
Saudi Arabia on Monday unveiled spending cuts in its 2016 budget, subsidy reforms and a call for privatizations to rein in a yawning deficit caused by the prolonged period of low oil prices.
The Gulf kingdom has kept oil production at high levels in an attempt to force out higher-cost producers, such as shale, and retain its market share. But this year's deficit ballooned to 367 billion Saudi riyals ($97.9 billion,) or 15 per cent of gross domestic product, as oil revenues fell 23 per cent to Sr444.5 billion.
Seeking to ward off future fiscal crises, the ministry of finance confirmed wide-ranging economic reforms, including plans to "privatize a range of sectors and economic activities".
Riyadh would revise energy, water and electricity prices "gradually over the next five years" to optimize efficiency while minimizing "negative effects on low and mid-income citizens and the competitiveness of the business sector," it added.
The first reforms will be effective from Tuesday, including an increase in gasoline prices, a rise in electricity tariffs for the wealthiest consumers, a modest increase in water costs for all, and changes to all energy prices for industrial users.
The government will also seek to implement a plan for the introduction of a sales tax across the six Arab Gulf states.
The success or failure of the reforms will help define the legacy of King Salman bin Abdulaziz al-Saud and his influential son, Deputy Crown Prince Mohammed bin Salman, who is overseeing the program.
Investors experienced plenty of shocks during 2015, the FT looks at the highs and lows including currencies, emerging markets, bonds, equities and commodities
The kingdom's austerity and reform program, a reaction to the past decade of profligate spending, has raised alarm among parts of the country's business community, who are already reeling from this year's cuts that have triggered widespread delays in government payments.
Radical reforms to the social contract between Saudi citizens and the ruling al-Saud family also threaten discord at a time when Islamist extremist groups such as Isis have threatened the country.
Real gross domestic product this year is expected to rise by 3.35 percent, with the private sector growing at 3.74 percent.
"We see real GDP growth decelerating sharply in 2016, albeit remaining positive," said Monica Malik, chief economist with Abu Dhabi Commercial Bank. "Non-oil GDP is forecast to moderate with the lower government spending feeding into the wider economy."
The government's austerity measures have been accompanied by extra spending items, such as the Saudi-led war in Yemen and Sr88 billion in bonus payments for civil servants when King Salman ascended to the throne in January.
The 2016 budget envisions spending Sr840 billion in 2016, compared to the Sr975bn that is forecast to have been spent this year and Sr1.14tn in 2014. Actual spending has outstripped projections by as much as a quarter for the past decade, but the government is trying to instil greater fiscal discipline.
Revenues in 2016 are forecast at Sr514bn, down from Sr608bn this year. The budget projects a deficit of Sr326bn in 2016.
There is also the video commentary, see it here.The uproar from the rise in prices due to implementation of GST and withdrawal of subsidy such as fuel can only be naturally expected. It's happening in Saudi too.
Quoting from the website www.npr.org, John Sfakianakis, a Riyadh-based economist who is a former government adviser said, below:
"Over the next year or so, you will see the introduction of a sales tax — a VAT tax — eventually some form of income tax."If that puts those cheap politic propagandist on the defense, expect more cheap politics as they come with a counter attack with a cheap reply.
Even the price of tobacco and soft drinks could rise through new taxes.
"The era of plenty has come to an end. This is it. The party is over," he says about a government that did not adequately address the challenge to diversify an oil-based economy as long as prices were high. Now, the government is signaling that "oil will be in the $30-$40 range for some time."
This "end of an era" moment in Saudi Arabia points to a new social experiment across the Gulf, as oil-rich monarchies grapple with lower state revenues.
There will be those saying if Saudi is on financial austerity, how could there be Saudi prince or princes donating RM2.6 billion to PM Dato Najib. So it must be siphoned from 1MDB. To debunk, just say that allegedly happened in 2013 and this is 2016. Saudi were buying US T-Bills then and not selling them now.
Co-incidently or by design, there is a looming war between Saudi and Iran [read Huttington Post here]. Pray it will not.