Will power tariff hike lead to economy crash, Putrajaya asked

December 6, 2013 4:34 AM

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The logo of Tenaga Nasional Bhd is seen at its office in Kuala Lumpur December 3, 2013. — Reuters picKUALA LUMPUR, Dec 6 — A DAP lawmaker questioned today if the increase of the electricity tariff amid the introduction of a broad-based consumption tax in 2015 will eventually cause the economy to collapse due to shrinking domestic demand.

DAP's Kluang MP Liew Chin Tong also noted that quantitative easing (QE) will likely end by the time the Goods and Services Tax (GST) is implemented in April 2015, and that the interest rate will probably rise that year, causing domestic demand to drop further.

“Will the electricity tariff increase become the last straw on the camel’s back that will see the Malaysian economy collapsing due to the confluence of several domestic and global factors?” Liew said in a statement today.

“Against the backdrop (of) an uncertain global economy and the likeliness of QE tapering, domestic demand is crucial in sustaining the Malaysian economy. Yet the spate of new taxes and price hikes will produce an opposite result: the further decline of domestic demand,” added the Kluang MP.

The electricity tariff in the peninsula will increase by 14.9 per cent, or 4.99 sen, to 38.53 sen for every kilowatt per hour (kWh), and 16.9 per cent, or 5 sen per kWh, to 34.52 sen per kWh for Sabah and Labuan, effective January 1 next year.

Liew pointed out that the GST will cut disposable income and depress domestic demand, besides causing inflation in the first year of implementation.

He also noted that a depreciating ringgit may worsen exports as job growth in the United States and Europe would still be slow.

“In addition, some US manufacturers are moving back to the States, which means room for Malaysia’s export-led growth is limited,” said Liew.

The DAP national political education director also said that palm oil prices would likely fall in 2015 due to the oversupply and a potential soya super harvest next year, despite a short-term shortage of coconut oil caused by the Haiyan typhoon that struck the Philippines recently.

“The potential softening of palm oil prices will have major political consequences in Malaysia as small owners in small towns and rural areas depend heavily on commodities,” said Liew.

Amid the skyrocketing of property prices in the Klang Valley, Liew also questioned if a property bubble would occur.

“What would be the combined effect of (an) electricity tariff hike, GST implementation, higher interest rate (mostly as a result of QE tapering) and lower commodity prices? The moment someone begins to default, there is risk of a meltdown, especially in the context of very high domestic debt to GDP ratio,” he said.

The federal lawmaker also highlighted Fitch Ratings' downgrade of Malaysia's credit outlook last July that cited rising debt levels and a lack of budgetary reform.

“The rating agencies' greater scrutiny of Malaysia's poorly managed public finances would likely to result in more expensive borrowing costs to the government and consequently pushing (the) interest rate for everyone else up further,” said Liew.

He further noted that petrol prices may drop when the supply of shale gas comes through.

“The fall of petrol price will be a double-edged sword. It would mean less subsidy payment, thus helping to reduce the deficit. Yet it will also erode Petronas's contribution to the public coffers, thus potentially resulting in (the) widening of deficit, which in turn further erodes the government's creditworthiness,” said Liew.

Source: themalaymailonline.com

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