M'sian Budget in Oct could include GST to reduce debt

PUBLISHED AUGUST 29, 2013

BY

PAULINE NG

IN KUALA LUMPUR

Mr Mohd Irwan: A GST 'is in the pipeline'. - PHOTO: THE STAR

MALAYSIA could introduce a long-mooted goods and services tax (GST) by year- end to address a persistent fiscal deficit and investors' concerns that structural reforms have stalled.

The possibility was highlighted yesterday by The Malaysian Reserve daily after the Finance Ministry's secretary-general Mohd Irwan Serigar Abdullah said he was "not ruling it out".

"It is in the pipeline. But let us wait for the Budget. It is a whole package for everybody," the senior officer at the treasury said in an interview with the newspaper.

He said a fiscal policy committee headed by Prime Minister Najib Razak is considering a number of issues including subsidy rationalisation, enhancement of revenue, prudent government spending, and public procurement via open tender. He reiterated the aim of reducing the fiscal deficit to 3 per cent by 2015 and to achieve a balanced budget five years later.

The public debt - currently at slightly over 53 per cent of gross domestic product (GDP) - would also be capped at below 55 per cent.

In the first quarter, the fiscal deficit swelled to nearly RM15 billion (S$5.8 billion) from under RM6 billion in the same period last year, international ratings agency Moody's said recently.

But unlike its counterpart Fitch, which downgraded the country's outlook to "negative" from "stable", Moody's has stayed its hand so far.

Budget 2014 will be tabled in Parliament on Oct 25 and ought to provide some indication as to what measures the government is prepared to take.

Also, Mr Najib (who is finance minister as well) has had dialogue sessions with various sectors and organisations to get their feedback ahead of the Budget.

Following a presentation, a participant said Mr Najib had acknowledged subsidy rationalisation was necessary but that "it had to be weighed against the political costs".

Some economists expect some subsidies to be cut next year, such as for fuel, but agree that they are likely to be very minimal.

Even if introduced, the GST - needed to broaden the current tax base, which is overly reliant on petroleum earnings - could be instituted at a lower rate than calculated to be effective.

Earlier, a rate of 4 per cent was mooted but some tax advisers suggest the rate should be around 6-7 per cent since goods currently attract a sales tax of 5-10 per cent and services 6 per cent. The GST would replace these taxes and it would not be levied on essential items.

Since the Asian financial crisis of 1997, Malaysia has run consecutive budget deficits which, a few dips notwithstanding, have remained stubbornly large.

To sweeten the ground ahead of a general election, hefty giveaways have become the norm. The deficit stood at 4.5 per cent of GDP last year and was to be pared down to 4 per cent this year.  But Moody's pointed out that fiscal transfers ahead of the May elections contributed to the government's expenditure growth, while revenues were constrained by the relatively weak performance of commodities.