Problem if GST target not met this year
Published on: Thursday, February 04, 2016
PETALING JAYA: External developments will remain a huge risk to Malaysia as continued weak sentiment will weigh on private consumption despite the government's move to increase household disposable income to boost the economy, according to economists.On that note, the revised economic growth forecast of 4pc to 4.5pc for 2016 appears to be more realistic, they said.Economists also cautioned that the situation could worsen if the government does not achieve its Goods and Services Tax (GST) collection target of RM39 billion this year.
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While local economists are of the view that Malaysia will be able to meet its 3.1pc fiscal deficit of gross domestic product (GDP) goal for 2016, Bank of America Merrill Lynch Asean economist Chua Hak Bin is uncertain whether it is achievable, given the hit on oil and gas-related revenue and negative impact from weaker economic growth.He, therefore, has maintained the fiscal deficit forecast of 3.5pc of GDP for this year, especially given optimistic forecasts on corporate income tax (+9pc) and personal income tax (+8pc) revenue, despite weaker growth."We believe the GST target (RM39 billion) will, however, likely be met, although the budget's austerity measures and spending cuts may hurt consumer spending," Chua said.Hong Leong Investment Bank economist Sia Ket Ee believes that the 3.1pc fiscal deficit target for 2016 is achievable, but the biggest risk is whether external developments will come off sharper than expected and lead to lower GDP growth.
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"Essentially the 3.1pc is benchmarked against GDP, so when there is slower GDP growth, then the risks are always that the tax revenue and GST may also come in lower than expected," he said.Sia went on to say that if the effect of external slowdown is higher than expected, such as the more protracted slowdown in China, it will then have a significant impact on the Malaysian economy.
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"We don't know what type of policy they (China) have to reverse the slowdown, the market is very concerned about the Chinese government letting the market adjust itself. If the slowdown is prolonged, eventually it will have a more impact on the trading partners," he added.However, Sia said, measures such as the redistribution and bidding of the telecommunication spectrum as well as the plug in leakages in duty-free areas can be implemented easily. A cut in employees' contributions to the Employees Provident Fund (EPF) and extra tax relief will also contribute to private consumption, thus boosting GDP.On the monetary policy aspect, Malaysia University of Science and Technology business school dean Dr Yeah Kim Leng foresees no cuts in interest rates anytime soon, with the country's monetary policy remaining accommodative."At this juncture, it (the revised budget) will be able to support the economy. But we also need to watch out (for) inflation," he said.OCBC economist Wellian Wiranto, instead, opined that there is a possibility for a further reduction in Bank Negara Malaysia's statutory reserve requirement (SRR) even after a 50 basis-point cut to 3.5pc recently, as it remains relatively high compared with the 1pc between 2009 and early 2011.The SRR is the amount of funds that commercial banks are required to keep with the central bank and are interest-free.Yeah noted that there is still a downside risk for the Malaysian economy amid global oil price rout and it is uncertain when emerging market demand will pick up."We have to see to what extent the Chinese economy stabilises. There is still some risk because of continued financial market turmoil, and it's still not stable enough to see industrial production and output picking up. We need to see a clearer signal from the Chinese economy," he added.Meanwhile, Chua said he is concerned about the risks from a widening consolidated public sector deficit and growing leverage of non-financial public corporations which are undertaking many infrastructure projects.Stay up-to-date by following Daily Express’s Telegram channel.
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