KUALA LUMPUR (Sept 2): With the upsized dividend of RM50 billion from Petroliam Nasional Bhd (Petronas) this year, economists are optimistic that it will be sufficient to help fund the government’s subsidy bill, which is expected to eventually hit a whopping RM80 billion — the highest in history.
Against a budgeted RM31 billion subsidy bill, the bill already reached RM77.7 billion as at June 29 this year, according to Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz.
Despite the rising trend, Prime Minister Datuk Seri Ismail Sabri Yaakob recently announced an allocation of RM1.5 billion to fund salary increments for civil servants. There are also cash aids allocated for civil servants, government pensioners and non-pensionable veterans.
On top of the additional RM25 billion from Petronas, economists suggested that the gap in the subsidy bill could be partly filled by higher tax revenue collection on the back of economic reopening and recovery, as well as cost optimisation initiatives.
For perspective, the government is estimated to rake in an additional RM10 billion in income tax and indirect tax this year, following the stronger economic growth in the second quarter, coupled with RM10 billion in tax revenue generated from the rise in crude palm oil prices.
Through its cost-saving effort, the government aims to save an estimated RM5 billion to RM6 billion. Not forgetting a one-off prosperity tax that could contribute RM3 billion to the government’s coffers.
When contacted, UOB Malaysia senior economist Julia Goh said the additional RM25 billion dividend from Petronas, coupled with higher income tax revenues, diverted funds from development expenditure and cost optimisation measures, is sufficient to cover the hefty subsidy bill, while ensuring the fiscal deficit target of 6% this year could be achieved.
She said the cost optimisation initiatives include the review of development projects under the 12th Malaysia Plan (12MP), in order to optimise government spending in financing additional subsidy-related expenditures.
Lee Heng Guie, Socio-Economic Research Centre (SERC) executive director, said the higher dividend contribution from Petronas was within market expectation, as surging crude oil prices this year have lifted the oil major’s profitability.
Note that the initial RM25 billion dividend payout was based on the average Brent crude oil assumption of US$66 a barrel when Budget 2022 was tabled last year. At the time of writing, it was trading at US$93.13 a barrel — a 20% rise year to date, after it hit a high of US127.98 per barrel on March 8 this year.
Despite higher petroleum income tax and oil royalty, Lee is concerned about the dividend payout next year, in view of the economic recession risk, which could lead to weakened demand for oil.
Boosted by the commodity boom, Petronas reported a 140% year-on-year (y-o-y) jump in profit after tax (PAT) to RM23 billion for its second quarter of this year (2QFY22), from RM9.6 billion last year, as revenue climbed 63.4% y-o-y to RM93.3 billion from RM57.1 billion.
Petronas’s earnings before interest, tax, depreciation and amortisation (Ebitda) for the quarter under review almost doubled to RM43.1 billion, from RM23.2 billion for 2QFY21.
This prompted the oil firm to double its dividend payout to RM50 billion this year, the highest since 2019, when the group declared RM54 billion.
Dr Yeah Kim Leng, professor of economics at Sunway University Business School, suggested that part of Petronas' windfall profits should be channeled into the national trust fund (KWAN) or be saved for “rainy days”.
“Fiscal prudence is warranted, given the spectre of another potential global shock in the form of a recession looming in the near term horizon,” he stressed.
"Petronas' surplus could also be invested in renewable energy and other sustainable development goals (SDG)-related investments. While Petronas could still fork out additional dividends to cover the government's revenue-expenditure shortfall, it is not a prudent or efficient use of scarce resources," he added.