Govt to continue with its expansionary budget

THE government will continue with an expansionary budget with a budget deficit of 3.7% that takes into account the need to repay unrefunded taxes and maintaining economic growth at a high level.

The fiscal position of the government for next year will see revenue collection shrink with the shortfall coming from the absence of higher revenue generating Goods and Services Tax (GST) receipts but expenditure too, minus the one-off repayment in refunding taxpayers on income and GST payments, will be trimmed.

The government will be paying RM37bil for outstanding tax refunds, of which RM18bil is from income taxes and RM19bil from GST.

To plug that funding obligation, the government will receive RM30bil from Petronas in a one-off special dividend.

Revenue is set to fall by RM4.6bil, to RM231.8bil, while operating expenditure, excluding one-off payments, is projected to fall by RM12.6bil in line with zero-based budgeting.

Development expenditure is forecast to remain at RM55bil and after taking into account all measures, the net savings is estimated at RM8.2bil.

After taking into account an additional RM7bil needed to go with the RM30bil special dividend from Petronas to partly finance the refunds, the fiscal deficit is expected at RM52.1bil or 3.4% of the GDP.

Interestingly, the fiscal outlook report also spoke of the medium-­term fiscal framework that provides fiscal guidance for three years that sets a three-year optimal spending level taking into consideration the revenue generation capacity and the government’s commitments.

Non-petroleum revenue is expected to form the largest part of government revenue during that period with a 76% share based on the price of Brent crude oil between US$60 and US$70 a barrel.

There will also be fiscal reform initiatives as only 20% of Malaysia’s 14 million workforce and 1.1 million business establishments pay income tax.

In addition, there are more than 100 types of tax incentives that limit tax collection revenue.

The tax reform committee was set up on Sept 1 to rationalise tax policy and streamline massive tax incentives.

Another reform would be the forming of the stabilisation fund within the consolidated fund so that when oil prices exceed the government’s budgetary forecast, the additional revenue collected will be put into the new fund.

This will act as a buffer should there be any adverse economic shocks in the future.

The third element of the reform will be the aim in increasing efficiency and productivity of government spending by reviewing the implementation of programmes and projects.