KUALA LUMPUR: Malaysia’s 2017 budget succeeds in striking a balance between remaining on the path of fiscal consolidation and retaining government support from key powerbases as the ruling party seeks to shore up its position following a year of considerable political instability, said BMI Research.
The research firm believes that the government is likely to achieve its goals given the targeted nature of its spending, and it forecasts the deficit in 2017 to come in at 3.0% of GDP (from 3.1% of GDP in 2016).
Given that the government obtains most of its revenue from direct taxes, we believe that it will likely meet its revenue collection targets (which the government forecasts to grow by 3.0% y-o-y) as we expect economic growth to pick up in 2017. Our 2017 real GDP growth forecast of 4.7% is largely in line with the government’s forecast of 4.0-5.0%. Ongoing efforts to further strengthen the collection of the 6.0% goods and services tax (GST) that was implemented in 2015 will provide further support for the government’s coffers. In an effort to improve tax collection, Najib announced the setting up of the Collection Intelligence Arrangement (CIA) agency that will be especially tasked to ‘enhance efficiency in tax collection and compliance’.
In addition, while Malaysia has been gradually diversifying its revenue collection away from oil-related sources, we believe that the stabilisation and pick up in oil prices will help the government achieve its revenue collection goals. Indeed, our Oil and Gas team forecasts Brent to average USD55.00/bbl in 2017, a figure that is considerably higher than the government’s forecast of USD45.00/bbl. Given that the oil-related revenues accounted for 21.5% of revenue in 2015, this is likely bode well for revenue growth.
