It was reported in TheStar back in February 2021 that Petronas had contributed almost RM1.2 trillion since 1976 to the national budget income. In Budget 2020, the Government projected a one-off special dividend of RM30 billion from Petronas which represented 10% of the overall RM297 billion income. The question is how long Petronas can continue to contribute significantly to the national budget? Source: Petronas
Read these first:-
- Budget 2020: A Quick Look & Challenges Ahead
- Economy 101: To Improve the Malaysian Economy: Stop Pissing Others Off
- Economy 101: Kiasu Noises from Singaporeans On Fuel Price
- Economy 101: What Is Interesting In 10th Malaysia Plan (10MP)?
First Time Pre Budget Statement
Well, it may not make any difference at the end of the day as someone said that it is nothing but public relations job by the MOF to probably to quiet down the public criticisms but the Finance Minister thinks that it is for the better:-
The Ministry of Finance (MoF) has issued a Pre-Budget Statement (PBS) for Budget 2022 today, the first in the nation’s history.
Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said in a statement that through the publication of the PBS, the rakyat would be able to track specific metrics such as the economic outlook, tax revenue performance status and the public expenditure status for 2021.
The PBS also provides a preliminary overview of the direction, approach and expected benefits of Budget 2022.
“This move is in line with international best practices, whereby a PBS is published to enhance the transparency of the process in formulating the annual budget as well as increase public confidence, particularly among investors, in the country’s fiscal management.
“MoF is confident that the publication of the PBS will provide more avenues for stakeholders to provide feedback and contribute towards formulating a budget that is well-aligned to the needs of the rakyat, as well as the country’s policies and national objectives,” said Tengku Zafrul.
Salient Points from the Pre Budget Statement
The Pre Budget 2022 Statement is quite a short document (just about 17 pages) and most of it talks about the 2021 financial story. However, some of the points made were interesting for comments:-
26. As of the end of June 2021, the Federal Government’s debt level had risen to 61.2% to GDP with the statutory debt level at 56.8%, which is still below the statutory limit of 60%.
However, with the revision of growth prospects and fiscal targets in line with the implementation of the NRP, the Government needs to ensure adequate fiscal space in the face of the pandemic crisis.
As such, there is a need to increase the statutory debt limit to provide additional fiscal space in strengthening the domestic economy and ensuring a sustainable recovery.
30. However as of July 2021, the Direct Tax collection stood at RM67.4 billion or 56.2% of the target, while the Indirect Tax recorded a collection of RM24.8 billion or 59% of the target.
Revenue collection for the first half of 2021 was lower than expected and subsequent collection is expected to decline due to the COVID-19 pandemic and the implementation of the MCO, which has affected business activities and income of traders, leading to an increase in the number of those who have lost their income.
33. The Government is committed in addressing the issue of revenue leakages, especially involving the smuggling of high-duty goods estimated at RM5 billion.
As such, the Multi-Agency Working Group, chaired by the Ministry of Finance to formulate strategies to curb smuggling activities, has been further strengthened by the participation of the Malaysian Anti-Corruption Commission and the National Financial Crime Prevention Centre.
The key items to look at are the increased Federal Government’s debt level, the reduction of the tax collection and finally, the attempt to address the issue of revenue leakages. Somehow the issue of expenditure leakages was not highlighted in the said statement document.
Federal Government Debt
Infographic source: The Edge Markets
However speaking on Federal Government Debt, here are some interesting facts that were published in May 2021:-
1. Government debt rests in Malaysian hands
Most of our government debt is actually in the hands of Malaysians and not foreigners. In 2020, local institutions, companies and ordinary Malaysians held about 76% of government debt and foreigners, 24%. Total government debt amounts to RM880 billion currently.
2. Majority of debt is due in five years or more
Generally, longer tenures enable the government to push the principal repayment further down the line. This reduces the pressure to repay debt in the immediate time horizon and enables the government to better plan its cash flow.
That is part of the reason why the government pushes for longer tenure debts and loans. It can do so now because its credit rating has stablised in the past decade.
3. Government debt grew in the 2010s but has slowed down since
Debt-to-GDP ratio = (Federal Government Debt / Gross Domestic Product) x 100. For Malaysia, its debt-to-GDP ratio has been consistently around 50% to 55% in the past decade. The government imposes a statutory limit of 55% on the debt-to-GDP ratio but it is actually an arbitrary self-imposed limit. Recently, debt-to-GDP ratio has risen to 61%, in order to combat the recession.
4. Most of it is in Malaysian Ringgit
About 97% of it is in Malaysian Ringgit, while 2% is in US Dollars and the remaining 1% is in Japanese Yen. Generally, it is considered good as the government mainly pays its debts in ringgit and thus is not exposed to fluctuations in foreign currency.
5. The money funds investments for the economy
The government spent 22% of development expenditure on transportation projects last year. Most of it was actually invested in transportation projects such as LRT extension, MRT, MRT2, and ECRL, which encompass about 22% of total development expenditure. Education came in second at 14%, followed by the defense sector and trade and industry both registering 10%.
6. Government relies on debt to finance itself
From 2001 to 2010, the government consistently made about RM11.3 billion in profits annually, giving it a strong financial position to undertake investments in the economy. However, from 2011 to 2020, that profit drastically dropped to about an average of RM1.9 billion every year.
However, there are criticisms on the self-imposed debt limit as well:-
There are two problems with this limit: it’s self-imposed and it’s couched as public debt.
The first problem is that the debt limit was created by the government itself. Since a political party can only form a government in Malaysia if it has a majority in parliament, the limit could easily be adjusted or abolished at will.
A second problem with the debt limit is that it is framed in terms of “public debt.” Thus, the government can argue that they should be allowed to spend all the way up to the 60% limit on its own.
However, others insist that “public debt” should include all debt owed by the public sector, including Malaysian state governments and any public-sector government agencies
Addressing Expenditure Leakages
I wonder why the Minister is only looking at the leakages for revenue which can be difficult to address as there are only limited sources and not looking at expenditure leakages which will be more manageable.
There has never been a time when we were confident of a lean Government except during the PH rule. Coming to the 2021 budgeting, the Minister needs to address the elephant in the room:-
The government has agreed to retain PAS president Datuk Seri Abdul Hadi Awang as the Prime Minister’s Special Envoy to the Middle East, according to the Prime Minister’s Office (PMO).
It said the Cabinet meeting yesterday also agreed to retain Progressive Democratic Party (PDP) president Datuk Seri Tiong King Sing as the Prime Minister’s Special Envoy to China and Serian Member of Parliament Datuk Seri Richard Riot Jaem as the Prime Minister’s Special Envoy to East Asia.
And one does not only content with ridiculous salary for these special envoys but also need to contend with related expenses that come with the appointment:-
Malaysian special envoys are not appointed by the Yang di-Pertuan Agong (King of Malaysia) as head of state, but rather direct appointees of the head of government, the prime minister of Malaysia.
They are often appointed with the rank equivalent to a minister. Special envoys are often accorded a team consisting between four to eight personnel, usually including a senior private secretary, special officer, two special assistants and some with a police escort.
What is the point of looking for additional incomes when unnecessary, wasteful expenditures continue to leech the national budget?
Regardless of the objective of the pre-budget 2021 statement and the request for public opinion for the next year’s budget, it is evident that it is nothing but a PR exercise. It does not achieve anything positive considering the current Government is still making unnecessary political appointments that add an additional cost and strain on the national budget.
— Iqbal (@Iqtodabal) September 9, 2021
And based on the majority of feedback from the man on the street only points to the same thing – cut down the bloated cabinet, get rid of useless envoys & advisors with the rank of Minister, slim down the number of civil servants and all politicians hold government positions to take a substantial pay cut until the economy recovers.
The question is whether the Minister of Finance accept these suggestions and add them to next years’ budget?