JULY 6 — Where there is gain, there is loss as well. Fitch Ratings maintained the country’s sovereign debt ratings at “A-“, much to the joy of jubilant government officials although the public are still swallowing the consequences of reduced subsidies and GST.
Fitch was of the opinion that the GST and fuel subsidy restructuring had positive impact on Malaysia’s finances.
Indeed for the sake of the country, no one should object to measures meant to improve the government’s fiscal health. It will be disastrous if the country has to go down the way of Greece.
Nevertheless, Fitch also pointed out the country’s weaknesses. The government should therefore not feel contented that the country has now overcome a hurdle and it is unlikely for the debt ratings to be revised downward by over the next 12 to 18 months.
If our financial weaknesses are accentuated, we don’t need Fitch Ratings to bring the national economy down the slope.
As a matter of fact, GST and subsidy rationalization are only a small part of the austerity program. There are still many things which we need to improve on.
While tabling the 201 Budget, PM Najib said the national coffers could expect to get additional RM23.2 billion in tax revenue from GST. But, the abolition of sales and services tax (SST) means the government will also have RM13.8 billion less in tax revenue. This, coupled with the RM4.9 billion to be distributed under BR1M and other expenses, will only bring an actual increase of RM690 million to the coffers.
Tax revenue from GST is never enough to cover the government’s enormous expenditures. The government has decided to distribute RM500 Duit Raya for each of the country’s civil servants, and that means RM1 billion is gone.
As such, it is imperative for the country to explore other “income-generating” avenues.such as plate number tenders.
In the past only JPJ would allow the public to bid for specific vehicle number plates, but now a non-governmental organization, the National Patriot Foundation (YPNM) is also allowed to raise funds through the “Patriot” number plate bidding exercise.
YPNM has paid RM1 “commission” to the JPJ, but the bidding price f “PATRIOT 1” alone has exceeded RM1.3 million. Imagine the super impressive profit margin.
The question is: Why did JPJ not keep such a lucrative business to itself but commission it to an NGO?
Fuel subsidy is only one of many things the government can look into when it comes to cost cutting. For example, we have more than 1.6 million civil servants on government payroll, a lot more than enough to do away with service outsourcing.
But then the government recently outsourced some electronic services to other contractors, including the e-PPA for the hiring of foreign workers. No one knows the details of this outsourcing contract. Does the government need to make up for the shortfall if the company in question fails to meet a specific turnover target like our highway concessions?
Cost cutting and income-boosting measures aside, the government must also focus on certain economic aspects such as consumer sentiment and business environment. If the public are unwilling to spend, company profits will be eroded or might even go into the red, meaning the Inland Revenue Department may not meet the RM142 billion tax collection goal for this year.
Local businesses have grumbled about the depressed market sentiment, and this situation will only get worse following the two fuel price hikes in June and July. What alarms the public is that the government has not declared the way of computing the retail fuel prices, making it hard for the public to budget themselves for future expenses.
Meanwhile, poor efficiency on the part of our sluggish civil servants will only bog down the national economy. For instance, while the Customs Department has promised to refund the input tax within the 14-day period, many businesses have yet to get their money back as of today. This will have a serious bearing on their cash flow status.
The deterioration of the overall economic environment will also spark domestic debt crisis that will not be offset by the government’s effort to cut subsidies and increase tax collection to cap the budgetary deficits.
Another thing to watch is the government’s hidden debts. In a written reply to a query in Dewan Rakyat, Najib said beginning this year the finance ministry would have to help nine GLCs pay between RM4.76 million and RM16.38 million in debts annually until 2020, amounting to a total of RM59 billion!
Despite media reports that former PetroSaudi executive Xavier Justo blackmailed his ex-boss and tampered with company e-mails, 1MDB’s RM42 billion debts and government’s RM950 million capital injection are irrefutable facts.
If we don’t step up control of our GLCs, sooner or later our economy will be sucked down the drain by them.
No doubt Fitch has provided a welcome relief, but for how long can we celebrate?
* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail Online.
