OCTOBER 15, 2013
Malaysia's strident opposition could delay Putrajaya's move to cut subsidies and put in a consumption tax to cut a yawning fiscal deficit that is already growing due to lower economic growth, say analysts.
RHB Research said an unscheduled meeting called by Putrajaya's economic czar Datuk Seri Abdul Wahid Omar (pic) last Friday also revealed that the government will go ahead with several pricey projects that could impact its contingent liabilities.
But the research house said the Minister in the Prime Minister's Department was confident that the 4% of the Gross Domestic Product (GDP) budget deficit target for 2013 "will likely be achievable".
"Indeed, the downgrade in GDP growth forecast by the government for 2013 from 5.0-6.0% to 4.5%-5.0% has made achieving the 4% of GDP budget deficit to be challenging," RHB Research said in a report issued in Kuala Lumpur.
The GDP downgrade pushed Putrajaya to cut fuel subsidies on September 2 in a move that could save RM1.1 billion for the remaining part of the year, which RHB Research said "will be the beginning of subsidies rationalisation in many steps that will be undertaken by the Government in the future and hopefully it could be followed through".
It said a few analysts and economists at the meeting wanted Putrajaya to set a timetable for subsidies rationalisation as previous plans were not implemented apart from a proposal "to float the fuel prices by sticking to a subsidy of 63 sen/litre" for RON95 petrol.
"The minister said that the Government will not stick to a timeline and will reduce the fuel subsidy gradually over time.
"As a reduction in fuel subsidy is a sensitive issue, it needs to weigh carefully against its impact that could easily attract unnecessary protests from the opposition parties," the research house said.
RHB Research said the minister cited the example of the government’s indication of implementing the Goods & Services Tax (GST) in 2015 where the "opposition threatens to go to the street to protest".
The report said Putrajaya also had "to sequence the fuel prices hike pass through by Tenaga Nasional Bhd properly in order to reduce its impact on businesses and consumers".
On rescheduling of high import content and less multiplier impact projects, it said the MRT Line-1, 2 and 3 projects would unlikely be affected but "some projects in the corridors, which are not the main focus of the Government and are not so feasible will be delayed or scrapped altogether". No details were given in the report.
The research house quoted Abdul Wahid as saying the government was aware of concerns over the contingent liabilities and that it "will become less and less in the future" and the public debt limit will likely be kept at below the 55% of the GDP self-imposed limit.
"Still, we believe the implementation of the MRT and high speed rail from Singapore to Malaysia will likely increase the contingent liabilities of the Government given its sheer size and only the Government will be in a position to do the project," the report said.
Abdul Wahid did not disclose the timeline for implementing the GST but analysts say there "are enough indications to suggest that the Government will likely announce the timeline in implementing the GST in the forthcoming budget".
"Still, there is a risk that it may not be implemented according to schedule, if the political pressure is overwhelming, in our view," RHB Research said.
It said the minister also spoke about the public-private partnership scheme and his preference to tender out state land for cash to build facilities rather than paying rent for the private sector to build on such land.
On the property market, the research house said Abdul Wahid noted house prices had "gone up significantly and indicated that there were speculative elements as well as manipulation of sales in the property market".
It added there was a likelihood that Putrajaya could announce some measures to cool down the property market in the forthcoming budget on October 25. – October 15, 2013.
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