Every Wednesday, people will start worrying about higher fuel prices because our cost of living has been rising steadily, putting a lot of pressure on each of us.
PM Najib said recently he had no power to control the oil prices. He was right. Compared to Saudi Arabia and other oil-rich countries, our oil production is insignificant and will not have much influence over international crude prices.
But, while the government is unable to control oil prices, it can do more to slash government expenditures and reduce the burden of the people. At least it can do something to prevent further slide of the ringgit and hence mitigate the impact of rising oil prices on the people’s livelihood.
The government abolished fuel subsidies in December 2014 in favor of a managed floating mechanism to determine retail fuel prices. It was because of continued expansion in the government’s operating expenditures such that it could no longer afford the subsidies.
Operating expenditures made up about 82% of all government expenditures at RM214.8 billion. Remunerations and perks for civil servants alone took up 29.7% or RM77.4 billion.
A decline in international oil prices forced the government to look for alternative sources of income in the form of 6% GST and other taxes.
In 2009, over 40% of the government’s tax revenues were derived from oil & gas but the ratio fell sharply to 14.6% last year. Apparently, GST was designed to make up for the shortfall.
For the past two and a half years, GST has contributed RM87.529 billion to the national coffers — RM27.012 billion in 2015, RM41.26 billion last year, and RM19.311 billion for the first six months of this year.
With RM87.5 billion siphoned into the national coffers, people in the street no longer have the spare cash to spend. Slowly businesses begin to drop.
Unfortunately, even this sum is unable to support the government’s enormous operating expenditures. So the authorities have to come up with all sorts of tax recovery measures to round up tax evaders, big and small. This further dampens the already depressed market sentiment.
More and more friends and readers in the business complain about the poor market conditions while SMEs are struggling to make ends meet. With dwindling revenues, sure enough the internal revenue board will see shrinking tax collection.
That said, remunerations for civil servants must go on. If tax collection thins down, then go after tax defaulters and introduce new taxes, and the vicious cycle goes on and on, triggering fears a new round of layoffs could be on the horizon.
As such, it is utterly essential for the government to manage the finances prudently, cut down expenditures and stop unnecessary wastage and corruption in a bid to stimulate the market and relieve the economic burden of the people.
If government finances are in good shape with surplus, then they won’t dig into our pockets and may even cut down the GST rate, individual and corporate income tax rates, and provide rebates to taxpayers.
It is in the government’s absolute discretion to lessen the people’s burden and re-energize the ailing economy. The question now is whether the government is willing or bold enough to do so.
Our political leaders now seem to be intoxicated by the impressive growth numbers, believing that the strong GDP performances of 5.6% and 5.8% for the first two quarters this year will take all economic sectors out of the doldrums.
However, FMM president Dr Lim Wee Chai has pointed out that our GDP was actually contracting in USD terms, as the local currency depreciated by 9% over the past one year.
Worryingly, bonds maturing on September 15 and October 15 amount to RM14 billion and RM13.5 billion respectively. If 1MDB is unable to settle the IPIC debts on time, the ringgit will be subjected to further downward pressure.
We have seen instances of painful reforms elsewhere in this world. For example, Greece’s public debts began to swell from 1970s and 1980s, and each time there was a change of government, the new government would tend to put its own people on government payroll. The constantly expanding civil service has triggered a massive debt crisis, forcing the government to streamline in exchange for loans from EU and IMF.
In Spain, the government is also tightening the belt, drastically shrinking government payroll and reforming the country’s pension system while freezing payrises for three years.
Financial reform is a long-term measure to put the country’s finances back to the track again. If we don’t do anything now, the entire society could be plunged into a state of chaos when the crisis erupts.
As we are celebrating the 60th anniversary of our independence, we should draw up a safer, low-risk path to continuously sustain the country’s prosperity.