The Reasons Behind Budget 2015 Amendments

Updated 09 Apr 2015 – By Loanstreet


It’s been barely a month into 2015 and we received news that Budget 2015 has been revised effective on 20 January, adjusting their fiscal deficit target to 3.2% instead of 3%. Is this a result of bad government planning? Do they need to fork out more funds for the upcoming MRT systems? Are they trimming more taxes? (You wish..) Let’s find out why!

Why The Sudden Change?

Shifting the fiscal deficit target to 3.2% from 3% implies that the government is forecasting a further increase in inequality between its expenditures and revenue, i.e. lower revenue or/and higher expenditure.

In this case, the immediate budget amendment resulted from falling crude oil world prices (U$ 110 to below U$50). If curiosity is killing you, find out why crude oil prices are falling and how it affects us, Malaysians.

What does this dip have to do with us? As you might know, Malaysia is a petroleum dependent country. In 2013, it accounted for 29.5% of total government income. With crude oil price slaughtered to more than half the amount a few months ago, you could imagine how atrocious our government revenue is currently.

With the danger of experiencing a shortfall of RM 8.3billion looming, the government has stepped up and claimed the recently proposed budget was unrealistic. This abrupt change was beyond the government’s control and has been pegged to an expected oil price of US$55 per barrel for the rest of the year.

What are the proactive measures made?

With RM 8.3billion revenue short, the government announced a RM5.5 billion savings to assure the 3.2% budget deficit instead of 3.0% will be met. Some measures are taken:-

i) Downsizing Expenditure

  • Optimize expenses on services, mainly on overseas travel, events & functions and use of professional services. (Savings: RM 1.6 billion)
  • Defer and enhance our National Service programme. (Savings: RM400 million)
  • Review transfers and grants to statutory bodies such as GLCs, Government Trust Funds and others with steady revenue and high reserves. (Savings: RM3.2 billion)
  • Reschedule procurement of non-critical assets, such as office equipment, software and vehicles. (Savings: RM 300 million)

ii) Heightening Revenue

  • Stimulate companies to register for GST. (Revenue: Additional RM1 billion)
  • Enlarge collection of dividends from GLC and GLIC. (Revenue: Additional RM400m)

iii) Maintaining Strong Economy

The government has to find other means to offset any harm done to our economic growth as a result of the higher budget deficit. This includes :-

  • Boosting exports of goods and services
  • Promote private consumption
  • Accelerate private investment

For a detailed breakdown of these 3 economy boosters, click here.

On a side note, our Prime Minister Datuk Seri Najib Razak has initiated plans to resolve issues caused by the recent floods, allocating RM800 million for repairments and basic infrastructures construction and another RM 893 million for flood mitigation instalments.

How will it affect our country’s GDP?

GDP would take a hit since our sales of crude oil plummeted. As a result, GDP growth target has been revised to between 4.5% to 5.5% instead of 5% to 6%. Let’s wait to see if this pans out.

Summing It Up

So, no further cuts in our taxes. Bummer. Nonetheless, Najib has assured that this change is merely a reality check due to declining global prices, stressing on the fact that we are not travelling back to 1997, 1998 and 2009 crisis. It should be seen as proactive and efficient response to challenging developments. What will you make of this?

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