Govt on wait-and-see mode for budget revision as oil prices soar

It is too early to gauge the impact of the oil price hike which has shed some gains after tensions over Iran’s rocket strike fade, says Lim


THE federal government is taking a wait-and-see approach before any revision is made to the state budget after the Washington and Tehran’s conflict sent crude oil prices soaring to a four-month high of over US$70 (RM287) per barrel.

Finance Minister Lim Guan Eng (picture) said it is too early to gauge the impact of the oil price hike which has shed some gains after tensions over Iran’s rocket strike fade.

“The government will not benefit (from higher oil prices). We will have to pay higher petrol subsidies. But of course, we are ready (for that). However, many said this hike in oil price cannot be sustained.

“So far, the US has not retaliated. So, if the conflict ends there, the oil price will go back to its pre-conflict days. The situation is a day-to-day development, but so far, the country can manage,” Lim told reporters at the Inland Revenue Board (IRB) Open Day in Kuala Lumpur yesterday.

Iran’s retaliatory missile attacks on US forces based in Iraq yesterday have injected fresh uncertainty to financial and oil markets across the globe. The Dewan Rakyat in November approved the government’s 2020 budget, which estimated the average oil price at US$62 per barrel.

The upward price momentum is positive news for oil producers such as state-owned Petroliam Nasional Bhd. Malaysia’s oil-related revenue, which is estimated at RM50.5 billion this year, will rise by RM300 million per every dollar increase.

On the flipside, higher Brent crude oil prices will mean higher fuel retail prices for consumers at a time when the government has decided to postpone a targeted subsidy fuel programme and cap the prices of RON95 and diesel at RM2.08 and RM2.18 per litre respectively.

Lim, however, said the government has a contingency plan should tensions escalate in the Middle East. For now, the situation remains under control and the government is confident of mitigating the oil price fluctuations.

“We do have a contingency plan if the war worsens, so definitely we have a contingency (for oil prices) and we can adopt it. The biggest challenge for us is to maintain economic growth. We are still a net oil exporter,” Lim said.

Separately, the government has set a collection target for direct tax of RM155 billion for 2020, after the IRB recorded a collection of RM145 billion in 2019. Government efforts to reduce corruption and the IRB’s “softer and gentler” approach are expected to contribute to the higher collection.

Malaysia’s shadow economy, which is worth around 20% of the country’s GDP, continues to present a major challenge for the country, the minister said.

“When we talk about shadow economy, in most economies it is around 5%. In developing countries, it is around 12%, but in Malaysia, it is very high at around 20% of our GDP. When talking about shadow economy, it is caused by corruption, smuggling and all these unreported incomes.

“The IRB is looking to increase our income, but we are doing it in a softer, gentler approach through continuous engagement. We are not going to do it like the previous government, raiding people’s houses wearing a balaclava and carrying M-16s,” Lim said.