M’sia to lose billions with oil price fall October 28, 2014 Najib should brief Parliament on the impact falling oil prices will have on the budget. COMMENT By Liew Chin Tong One of the Black Swan events that the current budget did not anticipate is the fall in oil prices. The Black Swan Theory, developed by Nassim Nicholas Taleb, is a metaphor that describes an event of major significance that comes as a surprise. Often psychological biases prevent people from comprehending or anticipating those events individually and collectively. While the Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah is still talking about having a multi-tiered fuel pricing mechanism, which is essentially a contract for the boys, the Finance Ministry should be concerned with the prospect of failing oil prices. In my Parliamentary Speech yesterday evening, I called on Prime Minister and Finance Minister Dato Seri Najib Razak to present a ministerial statement on what impact the falling crude oil prices will have on Budget 2015. According to estimates of the Federal Government’s 2015 revenue, the petroleum income tax is calculated based on crude oil price (Tapis) of USD 110 per barrel in 2014 and USD 105 per barrel in 2015. The crude oil price has fallen significantly of late and is hovering at USD 80-85 per barrel over the past two weeks. And there is talk that the USD 80 per barrel price would be the “new normal”. According to an estimate reported by The Edge Financial Weekly, every USD 1 per barrel drop in crude oil prices would cost the government about RM650 million in revenue. In other words, a decline of crude oil price by USD 20 to USD 85 per barrel will result in a reduction of revenue of RM13 billion (4%); if the crude oil price is reduced by USD 30 to USD 75 per barrel, it would mean a loss of RM19.5 billion (7%); and if the oil price is at USD 65 per barrel (a decline of USD 40), the loss would be RM 26 billion (9.4%). Petroleum income tax alone constitutes 21 percent of the federal government’s direct tax revenue. That does not include other forms of revenue contributed by Petronas. Such a scenario would have a huge impact on the budget and its deficit level that clearly requires a new forecast. Budgeting is a dynamic exercise. The Finance Minister has a moral obligation to constantly update the Parliament on the state of finances especially when the budget is being debated. Liew Chin Tong is the MP for Kluang
Posted on: Tue, 28 Oct 2014 09:37:27 +0000