PETALING JAYA: Malaysia may need to recalibrate Budget 2020 if oil prices continue to persist at current levels, with a risk of sinking further.
Even with oil prices seeing slight recovery, it may not be sustainable to reach US$62 per barrel which the national budget was based on.Brent crude oil was at US$36.30 per barrel while the West Texas Intermediate (WTI) was US$33.50 at press time.
Economists are of the opinion that the reintroduction of a revised goods and services tax (GST) would help cushion the numerous headwinds that the country is facing.
Alliance Bank Malaysia Bhd chief economist Manokaran Mottain said bringing back the GST at 4% could generate around RM32bil for the government, as compared to RM27.5bil under the sales and services tax (SST).
“We are proposing it at 4% and at least in time to come, we can gradually move upward. We must notice that we have a wider tax base.
“The government should also revisit and fine tune the fiscal stimulus package. Assuming that RM10bil will come from the 4% reduction of the employee’s share of statutory contribution to the Employees Provident Fund is a big challenge.
“The second wave of Covid-19 is even more dangerous now. I think more incentives should be given to affected industries such as logistics and airlines, ” he told StarBiz, adding that the companies should be given tax breaks.
Manokaran said oil contributed to 20% to the country’s revenue or about RM50bil and every US$1 difference in crude oil price is equal to losses of RM300mil.
He said there should be a recalibration in the national budget because there was nothing to push the oil prices back to US$60 levels due to the weak demand.
AmBank Group chief economist Anthony Dass suggested a further slashing in the overnight policy rate by 50 basis points to 2%.
He said Bank Negara can have an emergency cut instead of during the bi-monthly Monetary Policy Committee meeting.
He also said the central bank can push the Statutory Reserve Requirement rate by another 50bps to 100bps and have the additional fund injected into the Special Investment Fund to support SME businesses.
“The key thing is to boost confidence with the mounting pressure in the face of declining oil prices and the overall moderation of economic activity. Guidance on a review of Budget 2020 and fiscal stimulus measures is crucial as it will help to ease market concerns.
“As it is, there’s no telling where the bottom for oil is and the impact of Covid-19. The new projections on revenue will have to take into consideration of the current trend of crude oil prices and economic activities affected by Covid-19, ” Anthony said.
He concurred that it was also time to revisit the GST, adding that there should also be focus on high impact projects such as construction, infrastructure, manufacturing- related activities, fast-moving consumer goods, logistics, the halal sector, green business, medical devices, tourism and tourism- related businesses and SME businesses.
“The reduction in fuel prices will see consumers having higher disposable income. Strategies should focus on supporting private consumption to remain healthy since it has been the growth anchor, ” he said.
Socio-Economic Research Centre executive director Lee Heng Guie said if the situation of the oil price slump persisted beyond three months, the government would have to look at recalibrating the budget.
“With headwinds like Covid-19, the risk of global recession and economic slowdown, the government will have to relook Budget 2020 to increase spending or revise the stimulus package. They should also examine the ultimate impact on overall deficit based on the new oil price assumptions, ” he said.