The government’s estimate of an increased corporate income tax (CIT) revenue for next year is too optimistic, says Deutsche Bank Singapore economist Diana Rose del Rosario.

del Rosario said the government is anticipating CIT to increase from the estimated RM63.2 billion this year to RM69.2 billion next year.

“We have reservations with that; we think that is an optimistic assumption… We don’t see any force that can drive the corporate income tax significantly higher this year,” she told a forum in Kuala Lumpur yesterday.

del Rosario told the forum organised by the Malaysian Economic Association that, overall, CIT collections have increased over the past five years.

However, those were the better times, where there were a lot of economic activities taking place, and this is no longer the case.

She also pointed out that the government had also anticipated an increased CIT collection this year, during the tabling of the 2016 budget last year, but subsequently revised its estimate to show a slight decrease.

As for the government’s estimate of a slight increase in GST collections, she said this was "reasonable".

On the other hand, del Rosario added, the government’s assumption for Brent crude oil prices for next year, at US$45 per barrel, was on the "conservative side".

In contrast, she said, Deutsche Bank estimates that crude oil prices would average at US$50 per barrel next year.

This means that the government is likely to meet its target of reducing the budget deficit from 3.1 percent of the GDP to three percent, even if the CIT collections are lower than anticipated.

'Oil prices could be higher'

“In our view, oil prices could be higher. If that is the case, the deficit could still be lower even if the CIT collections come in lower. We could see that in an optimistic scenario, if you account for lower CIT collection, the deficit will still be around 2.8 percent of the GDP.

“So there is ample space for the government.

“And if our projections do not come through and we stay at this US$45 per barrel oil price, the government can actually squeeze its allocations for supplies and services, and other expenditures under their operating expenditure, or transport components of its development expenditures.

“So we are comfortable with the government being able to meet the three percent of GDP deficit target for next year,” del Rosario said.

However, she warned that such comfortable margins should not be an excuse for the government to abandon its fiscal consolidation efforts.

If it does, she said, the government debt would continue to increase and all its previous efforts on fiscal consolidation would go to waste.

PAS deputy president Tuan Ibrahim Tuan Man has criticised the government’s 2017 revenue estimate as unrealistic.

Among others, Tuan Ibrahim said, the assumed US$45 per barrel oil price for next year is US$5 lower than the average crude oil price this year.