October 12, 2011
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Still Talking Numbers: Budget 2012
by Dr. Ong Kian Ming (10-11-11)
One of the points of attack against Najib's 2012 Budget was that he was basing it on too rosy expansion projections. As such, the projected bill necessity of 4.7% of GDP, the rebate from the 5.4% in 2011, is probably not realistic.
Upon going by the relevant figures in the Economic Report 2011/2012, my anticipating is as follows: If favoured GDP expansion rates for 2011 as well as 2012 were cut by between 1% to 2%, the projected supervision necessity to favoured GDP would enlarge to 5.3% to 5.6% from the 4.7% announced.
This can simply enlarge to over 6.0% if the extra bill of RM10b is upheld after the 2012 Budget, generally if an additional 'stimulus' package is seen to be needed.
Real mercantile expansion projections
According to the list below, the GDP during consistent 2000 prices is projected to expansion from RM559.6 billion in 2010 to RM588.4 billion in 2011, the projected enlarge of 5.2%, that is inside of the 5% to 5.5% projected expansion rate voiced by the PM in his bill speech.
In the same table, GDP during consistent 2000 prices is projected to enlarge to RM620.5b in 2012, the projected expansion rate of 5.5%, that is inside of the 5.0% to 6.0% projected expansion rate in the bill speech.
Hence, the projected genuine expansion rates used by the MoF have been in the center operation of the expansion projections about 5.2% in 2011 as well as 5.5% in 2012.
Nominal mer! cantile expansion projections
However, the bill necessity voiced as the commission of GDP uses the favoured GDP as the denominator, that means that the effects of acceleration have not been nude out. Increases in favoured GDP embody both increases in genuine mercantile activity as well as increases in cost of products as well as services.
Projected favoured GDP expansion rates embody both the genuine mercantile expansion rate as well as cost increases. For example, favoured GDP increased from RM680 billion from 2009 to RM766 billion in 2010, the favoured enlarge of 12.7%. In comparison, the genuine GDP expansion rate in 2010 was 7.2%, after adjusting for cost increases.
Nominal GDP is projected to enlarge to RM847 billion in 2011, an enlarge of 10.6% as well as to RM918 billion in 2012, an enlarge of 8.4%.
The projected enlarge in favoured GDP is 2012 is essentially revoke than the projected enlarge in favoured GDP in 2011, even yet projected genuine GDP enlarge in 2012 is rather aloft than in 2011 (5.5% in 2012 compared to 5.2% in 2011).
One possible reason is that the projected acceleration rate for 2012 will be revoke than the projected acceleration rate of 3% to 3.5% in 2011, that might not be realistic if one after another demand pressures as well as the lack of an enlarge in seductiveness rates by Bank Negara maintains the acceleration rate during around 3% in 2012.
Increases in supervision output as well as revenue
The projected enlarge in supervision income is rather conservative during 1.9% from RM183.4b in 2011 to RM186.9b in 2012. Government income unexpectedly increased from RM159.6b in 2010 to RM183.4b in 2011, an enlarge of 14.9%, whereas the 2011 bill projected an enlarge of 2.3% to RM166b in 2010.
This means an additional RM17 billion was picked up as income in 2011. The astonishing enlarge in bill revenues was due to an enlarge in the Petroleum Income Tax (from RM18 billion in 2010 to RM26 bill! ion in 2 011) as well as in corporate taxes (from RM36b to RM44b).
At the same time, the projected output in 2012 of RM233b is the 9.8% enlarge from the RM212b projected bill in 2011 as well as is 1.7% aloft than the RM229 essentially spent in 2011 (including the extra budget). Of course, the projected output of RM233b in 2012 might not be sufficient (as is usually the case) as well as an approaching extra bill will probably be tabled in the center of next year, thereby augmenting the bill deficit. The supplementary
The list next summarises the pass figures discussed above.
What happens to the bill necessity as well as bill necessity as the commission of GDP if mercantile expansion is lower?
Some economists have questioned the projected expansion rates for 2011 as well as 2012 observant that they have been on the optimistic side. How will the revoke GDP expansion rate shift the bill deficit?
Obviously, with the revoke expansion rate, supervision income from personal as well as corporate taxes will be lower. Taxes for 2011 should have been 'locked in' already for this fiscal year. The usually subject is the border to that the revenues will be influenced in 2012. Direct income taxes have been projected to enlarge by 5.9% or RM5.6 billion from 2011 to 2012.
The bulk of this enlarge will come from enlarge corporate taxation revenues (RM3.5 billion) as well as income taxation income (RM1.7 billion). Revenue from corporate taxes have been particular susceptible to changes in mercantile conditions as was seen in 2009 where favoured GDP decreased by 8.4% while corporate taxes decreased by 25%.
I have constructed 3 scenarios where we have decreased favoured GDP expansion by 1%, 1.5% as well as 2% respectively for 2011 as well as 2012. Under any scenario, we have also decreased projected revenues by RM2, RM3 as well as RM4 billion respect! ively fo r the year 2012.
It is not irrational to project decreases in favoured GDP rates that have been aloft than possible decreases in genuine GDP expansion rates given of the GDP deflator effect. The projected decreases in income will be felt in the pick up of corporate taxes as well as possibly given of the revoke oil prices. Using these projections, we recalculated the bill necessity as the commission of the GDP for 2012. Table 2 next summarises the results.
While the enlarge in the projected bill necessity as well as bill necessity as the commission of the GDP is not large (the UK supervision is currently running the bill that is 9% of GDP), it does call in to subject the longer-term commitment of the current supervision to revoke the altogether debt weight as well as whether the objective of decrease the bill necessity to reduction than 3% of the GDP by 2015 is achievable.
This is generally the regard given there were no new income measures voiced with the exception of becoming different the conditions as well as conditions of commanding the 10% genuine skill gains taxation (RPGT) for properties sole inside of two years of purchase, is will usually net the supervision the maximum of RM100 million during most.
Comparison with Pakatan Rakyat's budget
In contrast, Pakatan's bill caps spending during RM220 billion, has some-more reasonable income projections during RM181 billion (compared to RM186.9 billion for the actual budget), as well as has some-more reasonable expansion projections of 4% to 4.5% for 2012. This allows for the bill necessity in Pakatan's bill to be marked down to 4.4% of GDP underneath most some-more reasonable baseline assumptions.
DR ONG KIAN MING binds the PhD in Political Science from Duke University. He can be reached during im.ok.man@gmail.com
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