KUALA LUMPUR: The budget deficit target for 2019 could be raised to 3% of gross domestic product (GDP) from the targeted 2.8% this year, Socio-Economic Research Centre’s (SERC) executive director Lee Heng Guie (pic) says.
“I believe the deficit will be at a slightly higher level than the 2.8% mainly due to the lower revenue outlook collections. This is in spite of a cut or a rationalisation of government spending. There is no issue for the 2.8% this year, but we will have to see for next year,” Lee said at SERC’s quarterly economy tracker.
“Our inhouse GDP growth target for 2018 is 4.8%, while the forecast GDP growth for 2019 is 4.7%. All in, the budget needs to be lean but still supportive of the economy as we face the realities of what is happening today,” he added.
On the outlook of the country’s financial situation, he said the government may need to brainstorm more innovative ways to raise the country’s revenue.
“The best way to do this is to go through the consumption tax method and less taxes on income. The sales and service tax, which has replaced the goods and services tax, will be able to do this to a certain extent,” Lee said.
He said that according to the Pakatan Harapan Alternative Budget for 2018, the government might introduce other forms of taxes such as the inheritance tax or the capital gains tax (CGT) for investments in the stock market.
“However, there are pros and cons to such new taxes and it must be thought through carefully, more so especially in this era of globalisation where capital is so liquid. We will also have to compare ourselves with neighbouring countries in the region.
“Should we go on with it, Malaysia might be put in a disadvantaged position compared to our neighbours,” Lee said.
“The inheritance tax, for example, is not something new to us as we have had it before under the Estate Duty Enactment 1941, which was repealed on Nov 1, 1991 due to low revenue collected. The pros of this is that it reduces income equality in theory; while the cons is that it dampens work efforts, entrepreneurship and wealth creation. It also causes a loss of economic output due to reduced capital formation,” he added.
Lee said that in practice, the correlation between the inheritance tax and income equality is not strong and is a poor source of revenue.
“The tax effort and administrative cost will outweigh the amount of revenue collected,” he said.
He also noted that there were some issues with the CGT, as it might further dampen foreign investor entry into Malaysia, given that they are already marginalising Malaysian equities presently.
Lee said the budget should still be conservative on the oil price outlook, unless there is a lot of upside in oil prices from the present levels.
Meanwhile, he said, the government should also consider setting up an independent panel to review the cost of doing business, streamline regulatory practices and compliance cost.
“The government should step up e-services and e-procurement contracts to promote competitive and transparent tendering processes. Every year, about RM100bil of contracts are dished out to the private sector. If it is more competitive, there would be a lot of savings here,” he said.
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