Budget likely to focus on sustainable growth

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KUCHING: The upcoming budget is likely to emphasise sustainable and inclusive growth in the forthcoming year, says an economist, as the countdown continues towards Budget 2016’s unveiling on October 23.

Economist Patricia Oh from AmResearch Sdn Bhd (AmResearch) expects the allocation for development expenditure to be broadly unchanged at RM50.3 billion in 2016, assuming that the government allocates RM2 billion per annum for contingencies during the 11 Malaysia Plan (11MP) period and apportions the development spending allocation given the expectations of a slight decline of 0.4 per cent per annum for the next four years.

“Other than that, we envisage total operating expenditure to be about RM226 billion in 2016, assuming an average annual growth rate of 6.4 per cent for operating expenditure during the 11MP period,” she said in a note yesterday.

“Government revenue to rise by 7.9 per cent per annum during the 11MP period. Government revenue is likely to advance to RM240.3 billion in 2016, on the back of the targeted revenue boost of 7.9 per cent per annum.

“Based on earlier guidance for the 11MP period, federal government revenue is envisaged to be RM1.4 trillion for five years from 2016 to 2020, which is a cumulative growth of 34 per cent compared to RM1.05 trillion in 10MP.”

The government has been gradually diverting from its high dependence on petro-dollar income towards a more sustainable and broader revenue base, Oh said as going forward, the Goods and Services Tax will generate an average of RM31.4 billion revenue per year over the next five years.

“For 2015, development spending is retained at RM48.5 billion plus RM2 billion for contingencies,” the economist added.

“Nonetheless, the allocation for operating expenditure has been lowered by RM11 billion to RM212.4 billion.

“Also, total government revenue is revised lower by RM12.5 billion to RM222.7 billion.”

Overall, Oh said the government’s commitment to further reduce budget deficit will likely improve its financial position.

“That said, the government is committed to reduce budget deficit to 3.2 per cent of Gross Domestic Product (GDP) in 2015, driven mainly by the boost in revenue.

“As at year to date 1H15, GDP had advanced by a healthy 5.3 per cent while budget deficit stood at 2.8 per cent of GDP. Also, the government seeks to reduce the fiscal shortfall further during the 11MP period to 0.6 per cent by 2020.

“Given that, we foresee a reduction in fiscal deficit to 2.7 per cent in 2016, assuming that GDP grows by between 4.5 to five per cent while the government remains prudent in terms of spending.”