BANDAR SERI BEGAWAN – The government’s fiscal position may not improve even if Brunei experiences continued economic growth as taxes are not levied on individuals to generate revenue, the second minister of finance and economy said.
Acknowledging that Brunei’s fiscal deficit is unsustainable at the Legislative Council (LegCo) on Saturday, Dato Dr Hj Mohd Amin Liew Abdullah said prudent spending alone cannot overcome the budget shortfalls that started a decade ago.
He said Brunei’s fiscal policy is different from other countries where personal income tax, corporate tax, property tax, sales tax and tourist tax are used to cover government costs.
“In Brunei, even when tourists increase, or when there are more people buying houses, it does not necessarily [contribute to higher government earnings].
“If someone registers their company, they pay corporate tax but apart from that, [the government] does not earn much [from taxes] as seen in neighbouring countries,” he added.
Brunei has one of the least number of taxes in Asia and its corporate income tax is also one of the lowest in the region at 18.5%.
The sultanate has recorded seven budget shortfalls in the past 10 financial years, with a widening deficit of $2.99 billion expected in the FY 2024/25 due to lower energy prices and disruptions to domestic oil and gas production.
About 75% of government revenue is derived from oil and gas, while the industry makes up roughly half of Brunei’s GDP.
Responding to LegCo member Pehin Dato Hj Adanan Hj Md Yusof’s question on strategies to address the fiscal deficit, the minister said MoFE has adopted a fiscal consolidation programme to encourage private-public partnerships and corporatisation in the past few years.
“To achieve sustainability, we have to think about the next generation. What we spend now must produce positive results in the future.
“As I have mentioned before, we are investing in our future. This is our current strategy,” Dato Dr Hj Mohd Amin said.
Think tank Centre for Strategic and Policy Studies (CSPS) previously said budget deficits in the past had been financed by fiscal reserves rather than through external borrowing.
In terms of fiscal policy, CSPS had also recommended immediate tax actions including raising or introducing excises on products with a negative health or environment impact as this would be more feasible compared to other tax options.
Gov’t to launch payment gateway by ‘early next year’
Brunei is expected to launch its digital payment hub by “early next year”, Dato Dr Hj Mohd Amin said.
The minister said MoFE is working with local banks to create the infrastructure for the payment gateway, which will promote online and cross-border payments.
He added that the government needs to ensure reliable connectivity and cyber security before digital payments can be made.
The minister made the remarks in response to LegCo member Chong Chin Yee’s query on government measures to reduce cash transactions.
The payment gateway will centralise Brunei’s digital transactions by integrating existing and future payment systems.
A number of digital wallets are available in Brunei — such as Pocket, BIBD QuickPay, and DST Pay, but all of them need to be linked to a debit/credit card or directly to a bank account.
Through the centralised payment hub, consumers and businesses can make digital payments through the network even if they don’t have a bank account.
Brunei ‘already seeing results’ from FDIs, FTAs
Foreign direct investments and free trade agreements have already delivered results and contributed to Brunei’s economic growth, said Dato Dr Hj Mohd Amin.
Addressing LegCo member Hjh Rosmawatty Hj Abdul Mumin’s question on Brunei’s achievements in promoting an open and globally connected economy, the minister said free trade agreements have allowed the sultanate to reach new markets.
“Through our involvement in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), we exported fertilisers to Chile in 2021. In 2022 and 2023, we also exported for the first time to Peru and Mexico, [respectively].
“We need to continue this so that people in the global market see us as a reputable trading partner, and [foreign investors] can see [the potential of] their products being exported when they set up a factory in Brunei,” he added.
In 2018, Brunei was one of the 11 countries that signed the CPTPP — a free trade pact that provides market access to a population of 600 million.
The minister said Brunei must show the global market that its trade policy is up to date, despite not having many industries that export products.
He added that the sultanate cannot rely on local small and medium enterprises to develop and diversify the economy, even though they are encouraged to expand overseas.
MoFE gets 7.9% budget hike
The Ministry of Finance and Economy has tabled a budget of $1.09 billion for FY 2024/25, with miscellaneous expenses ($878.53 million) taking up a large bulk of its spending.
The proposed budget represents a 7.9% increase from the previous year.
Announcing MoFE’s budget, Dato Dr Hj Mohd Amin said the miscellaneous expenditure includes funds for other ministries and unexpected expenses.
Under the miscellaneous expenses, $113.5 million has been allocated for aid, grants, transfer payments and subsidies.
A total of $37 million has been set aside to deal with infectious disease outbreaks, while $25 million will go towards disaster management.
Another $276.4 million will be used to finance repair works on Al-Islah Rehabilitation Centre and Brunei History Centre, upgrading and maintenance of Maraburong and Jerudong prisons, as well as renovation of the former Telekom Brunei building.
Meanwhile, $27.5 million has been allocated for the new treasury accounting and financial information system (TAFIS), national coastal surveillance system, National Maritime Coordination Centre, four interceptor boats and repair works at Universiti Islam Sultan Sharif Ali campus.
Some $156.06 million will be spent on recurring expenses, including $26.2 million for maintenance of information technology systems.
The remaining $64.2 million will be used to fund the payment of salaries, bonuses, allowances, as well as Employees Trust Fund, Supplemental Contributory Pension and National Retirement Scheme contributions.
In terms of projects under the five-year National Development Plan, $98.3 million has been earmarked for the government human resource management system, national business services platform, cluster development, green building project, integrated statistical data system and socio-economic census and survey.