PETALING JAYA: Putrajaya has been urged to revise its annual budget as oil prices continue to trade below the assumed price of US$70 per barrel.
This follows remarks by UBS global wealth management regional chief investment officer Kelvin Tay, who said in an interview on CNBC that Malaysia was very reliant on oil following the government’s move to scrap the goods and services tax (GST).
Tay also said price levels of US$55 per barrel could spell disaster for the country.
Universiti Tun Abdul Razak economist Barjoyai Bardai agreed that Malaysia was over-reliant on oil prices due to the axing of GST and lower palm oil prices.
However, he said it was unlikely that oil prices would drop below US$60 per barrel due to controls by the Organization of the Petroleum Exporting Countries.
Neither does he expect prices to exceed the US$70 mark.
“The government needs to revise its budget, and to do so on a monthly basis.
“The government can also plan for ways to increase revenue, but this will have to wait until the next budget is announced,” he said, adding that introducing measures now could affect investor confidence.
The government’s problem, he said, is that it is trapped between consumer expectations of lower cost of living, and the pressures of a declining economy with a dip in revenue from the abolishment of GST.
Adli Amirullah, an economist from the Institute for Democracy and Economic Affairs, said Putrajaya needed to be less reliant on oil revenue as a shock decrease in prices would affect the government’s budget.
In the long run, he recommended more structured indirect taxes and a widened scope of the sales and services tax. He said the introduction of a digital tax on services in 2020 would be a good start.
Singapore Institute of International Affairs senior fellow Oh Ei Sun cautioned that without additional sources of revenue, the government would have to slash its expenses.
He spoke of downsizing the civil service or ensuring the more efficient allocation of government resources and subsidies.
“Almost 80% of expenditure goes to paying salaries and administrative costs,” he told FMT.