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Friday, November 1, 2013

Budget and political risks — Lim Sue Goan

OCTOBER 31, 2013

OCT 31 — Our prime minister is known for his careful approach. But then why did he announce measures to abolish subsidies on white sugar and the 6 per cent GST from April 2015 in the 2014 Budget?

The Malays consume a lot of sugar. GST at a high 6 per cent instead of 3 or 4 per cent will aggravate the financial burden on low to middle-income families. With the government having rejected the GST bill in 2009, why such a “bold” step this time?

I personally feel this could be attributed to three factors:

1. The government has full confidence in the country’s unique “subsidy rationalisation”.

Under Barisan Nasional’s “subsidy rationalisation”, subsidies on essential items will be progressively reduced or abolished, and be rechannelled as assistance money.

By withdrawing the subsidies on white sugar, the government will save RM551.25 million next year, allowing it to increase the BR1M to RM650 while handing out RM450 to families with monthly incomes between RM3,000 and RM4,000. Those earning below RM8,000 a month can also look forward to additional RM2,000 special tax rebate.

Although withdrawing the subsidy would have chain effects, the government is confident public frustration could be offset by the increased assistance. Moreover, the government has since July 16, 2010, reduced the subsidy but Malay voters still supported BN in the May general election.

2. Public debt is nearing the top and the government urgently needs the additional revenue from GST.

Prime Minister Najib Razak announced a slashing of the budgetary deficit to 3.5 per cent of GDP next year, but with public debt approaching 55 per cent, the government will need massive new revenues to spare it from a possible downgrade in ratings to balance its accounts by 2020.

Minister in the PM’s Department Idris Jala had said earlier that if the government were to impose GST of 7 per cent, the government’s revenue would be increased by RM27 billion. Economists estimate that 6 per cent GST would bring additional RM11-RM12 billion to the national coffers. Whatever the final amount is, only high taxation could help the government resolve its financial crisis, allowing it to lower individual and corporate income taxes beginning from 2016.

3. The government’s operational expenses have been on the rise. The allocations set aside under the budget for next year will be RM264.2 billion, of which administrative expenses are RM217.7 billion or 82.4 per cent, up from this year’s 80 per cent, while development expenses are down from RM51.2 billion to RM49.7 billion and RM46.5 billion over the past three years.

The rising administrative expenses could be attributed to the rising remunerations for civil servants, up from RM60 billion to RM63.6 billion. As the 1.4 million-strong army of the civil service is the pledged vote bank for the BN, there is no way the government will shrink this number.

If the expenses keep ballooning, there are strong possibilities that subsidies on more essential items will be cut next year.

This explains why Najib has been bold to make the announcements. However, there is something else he has to take into serious consideration: to take good care of BN’s fundamental support base.

For instance, Najib has announced to make bumi agenda part of the national agenda, implementing measures to help increase the holding of bumi equity and property ownership along with programmes to help young bumi entrepreneurs start their own businesses.

Mara will increase its admission from 180,000 to 250,000 while civil servants can continue to look forward to generous bonuses.

Nevertheless, no one can foretell the impact of the 6 per cent GST. If things go well, BN can expect to go on with the existing economic model. But if it backfires, BN could face a hard time com the 2016 Sarawak state election and the 2018 general election.

There are risks to be taken in politics, and this risk is not going to be a minor one. The 78-sen hike the price of petrol in June 2008 should serve as a lesson. — Sin Chew Daily

* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malay Mail Online.

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