Govt confident of hitting fiscal deficit target with fuel subsidy scrap

The government remains confident of achieving its fiscal deficit target of 3.5 per cent of gross domestic product (GDP) for this year following the removal of fuel subsidies for RON95 petrol and diesel, said Second Finance Minister Datuk Seri Ahmad Husni Mohamad Hanadzlah.

“We have to look at the overall financial position in terms of revenue contribution from tax and oil and gas that we received,” he told reporters after opening the National Economic Outlook Conference (NEOC) today.

In 2012, Malaysia’s fiscal deficit stood at 3.9 per cent of GDP. Ahmad Husni noted the inflation rate will increase next year from 3.3 per cent this year, despite the softening in oil prices.

For the first eight months of 2014, Malaysia’s inflation accelerated to above three per cent, but inflation eased slightly in September and October to 2.6 per cent and 2.8 per cent respectively.

Oil is currently trading at US$70 (RM239.75) per barrel.

“Based on our forecast, if we take into account the implementation of the Goods and Services Tax (GST) next year, the inflation would inch up further,” he said.

Yesterday, the government implemented the managed float system to fix the prices for RON95 petrol and diesel.

In his keynote address earlier, the minister said the government knew that the subsidy did not benefit those who needed it the most, as only about 24 per cent of the entire fuel subsidy went to Malaysian households, with the remainder benefiting mainly the business sector.

"These subsidies were unfair to the poor," he said, adding that on average, assuming all things remained equal, each household, regardless of income, received a subsidy of RM625 per year for electricity and RM885 for fuel.

"In reality, however, it was the high-income households that enjoyed both of these subsidies, receiving 80 per cent of both subsidies," he added.

On another note, Malaysian Institute of Economic Research Executive Director Professor Emeritus Dr Zakariah Abdul Rashid said Malaysia’s GDP growth will remain robust at 5.9 per cent this year, driven by private sector consumption and investment.

However, he estimated a GDP growth of 5.0-5.5 per cent next year, supported by external demand.

Zakariah warned that the recent weakening of the ringgit along with other regional currencies would continue as the US dollar strengthens.