Research firm predicts scholarship cuts, more GST items with Budget 2016 revision

KUALA LUMPUR, Jan 28 — Putrajaya may reduce education scholarships, reclassify items previously exempted from the Goods and Services Tax (GST) and allow voluntary options to cut employee contributions to the Employees Provident Fund (EPF) in today’s revision of Budget 2016 to tackle an estimated RM11 billion revenue shortfall, AllianceDBS Research said.

The Alliance Investment Bank research firm’s estimate of an RM11 billion fiscal shortfall was based on the projected oil price of US$30 per barrel this year amid a global oil plunge, compared to the US$48 figure that was estimated in Budget 2016 tabled last October.

“Overall, we expect a combination of ad-hoc measures to recalibrate Budget 2016. Cost cutting measures will be painful but it is inevitable,” AllianceDBS Research said in a report.

“For now, we maintain our 2016 GDP forecast of 4.5 per cent (government: 4.0 per cent – 5.0 per cent). In the event crude oil price stays at current level for prolonged period, future fiscal policies must be even leaner in order to balance the fiscal deficit by 2020,” it added.

According to the firm, Brent crude oil prices dropped below US$30 in mid-January, falling to an intraday low of US$27.50 per barrel on January 21.

AllianceDBS Research said it did not rule out the possibility of Malaysia “reclassifying certain goods and services previously exempted from GST”.

The firm also said it did not expect civil servants’ salaries to be cut, but it was likely for Putrajaya to look at the supplies and services component that make up RM36.3 billion or 16.9 per cent of operating expenditure in the original Budget 2016. Supplies and services include expenses for maintenance, rental, repairs, transport, travel, utilities and raw material expenses.

Within supplies and services, the top five ministries with the highest allocations are the Health Ministry (RM7.6 billion), Defence Ministry (RM5.8 billion), Education Ministry (RM4.4 billion), Home Ministry (RM3.9 billion) and the Prime Minister’s Office (RM3.1 billion).

“If the government targets a 10 per cent cut on these allocations, it could save about RM2.5 billion. For instance, the bursary allocated under the Education Ministry amount to RM30 million.

“Under the Public Service Department, up to RM1.7 billion is expected to be allocated for education scholarships. We do not rule out the possibility of trimming education scholarships and the government encouraging students to pursue tertiary studies domestically,” said AllianceDBS Research.

AllianceDBS Research said Putrajaya could consider providing a voluntary option to cut between 1 per cent and 2 per cent the contribution from employees to EPF, which is currently 11 per cent, to boost household consumption.

“For every 1 per cent slash in EPF contributions by employees, it is estimated that up to RM2 billion net contributions could be added into disposable income for households.

“Through Bank Negara’s estimate of household consumption multiplier at 1.5 times, some RM3 billion plus can be translated into potential consumption,” it said.

Prime Minister Datuk Seri Najib Razak will be announcing revisions to Budget 2016 at 12pm today.