Removal of GST won’t derail fiscal deficit target
THE audacious move by the Pakatan Harapan coalition government to abolish the goods and services tax (GST) may not necessarily derail Malaysia from its fiscal deficit target, as feared by many economic pundits.
While credit rating agency Moody’s described the removal of the consumption tax regime as “credit negative”, several economists expect Malaysia to remain largely on track of its fiscal deficit target, provided the government fulfils its election promises for reforms in national expenditure.
Lower expenditure, coupled with higher crude oil prices and the re-introduction of the sales and services tax (SST), will be key in buttressing the national finances, moving forward.
According to Alliance Bank Malaysia Bhd chief economist Manokaran Mottain, the federal government may see a revenue shortfall of about 5 billion ringgit to 10 billion ringgit this year – even if the loss of revenue from the removal of the GST is substituted by the higher crude oil price and the re-introduction of the SST.
“If the new government can plug the holes in the country’s fiscal management, particularly in the procurement process, then the revenue shortfall can be met eventually.
“One of the areas which may lead to cost savings is the reduction in allocation to the Prime Minister’s Office (PMO), as the Pakatan government has pledged to reduce the function of the PMO and include fewer ministers there.
“A total of 17.4 billion ringgit was allocated to the PMO in Budget 2018, which was considerably high compared to the budget allocated to other departments,” he said.
Pakatan had said previously that cost savings of about 20 billion ringgit or 1.4 per cent of the gross domestic product (GDP) could be achieved, given the reduction in wastage and corruption.
While he described the 20 billion ringgit target as “ambitious”, Manokaran indicated that the government could achieve savings close to the target, if unnecessary expenses can be identified and eliminated.
Since taking office after winning the 14th General Election, the new government has terminated the services of about 17,000 political appointees in the ministries as it tries to slash spending and introduce a leaner administration.
Fiscal consolidation measures are not new in Malaysia, as the previous Barisan Nasional government had sought to trim the country’s fiscal deficit, a measure of how much the national expenditure has exceeded revenue. Among the key measures were the GST and subsidy rationalisation, which were criticised for the rising cost of living for Malaysians.
