Economists say pro-growth policies will offset decreasing contribution
PETALING JAYA: An expanding economy supported by pro-growth and and pro-business policies will help offset the lower contribution in dividend from Petroliam Nasional Bhd (Petronas) to the Government.
Economists who spoke to StarBiz said as long as the Government continued with pro-growth policies that would expand the economy, lure private sector investments and rationalise the subsidy for fuel and other basic staples, the lower dividend from Petronas would not be a major worry.
Petronas president and chief executive office Datuk Shamsul Azhar Abbas had indicated on Wednesday that the national oil company would cut dividend contributions to the Government as there was a need to raise capital expenditure substantially.
Affin Investment Bank Bhd economist Alan Tan said healthy growth and consequently higher contributions from corporate and personal taxes would help offset the lower dividend, which annually averaged RM30bil.
This did not include corporate taxes, which would depend on how much profit Petronas made. Petronas paid RM53.5bil to the Government for the financial year ended March 31, 2010 (FY10), including RM18.7bil in taxes.
This was on top of RM18.9bil in gas subsidy for FY10.
The taxes and dividends paid by Petronas account for over 40% of the Government's revenue. Among other sources of revenue, taxes collected from businesses and individuals amounted to RM86.4bil last year.
“Its important to have pro-growth and pro-business policies which can then lead to more taxes from corporate and personal sources as the economy expands,” Tan said.
He added that to reduce the budget deficit, which the Government had targeted to lower to 5.4% of gross domestic product from 5.6% last year, further fiscal consolidation would have to be pursued.
“This can be done by cutting down on the operating expenditure,” Tan said.
MIDF Research chief economist Anthony Dass said besides direct taxes, the much-debated goods and services tax, which has been postponed indefinitely, could be another avenue, especially since private sector consumption has risen.
“There's also the rationalisation of the subsidy although that will be something that can only happen gradually,” he said.
Meawhile, observers said the reduction in revenue, which would come at a time when the Government was embarking on infrastructure building programmes, might impact Malaysia's sovereign ratings.
However, RAM Ratings Services deputy CEO Chong Kwee Siong said although a major portion of sovereign ratings depended on the ability of governments to finance their budgets and service debt, this would also depend on agency view and benchmark.
“The question to ask is if reduction in government revenue is just temporary,” he said.
Chong said rating agencies would also take into consideration what governments spend on. “It depends on what the budget is spent on, if its investment on infrastructure to boost the economy, then its positive,” he said.
