Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on May 14, 2018 - May 20, 2018

CANCELLING the Goods and Services Tax (GST) is one of the first things that Tun Dr Mahathir Mohamad announced as Malaysia’s seventh prime minister. “There is no rolling back [of GST], it is a cancellation. We don’t need it. We will go back to the Sales and Services Tax (SST) for the moment,” he told reporters on May 10.

A back-of-the-envelope calculation shows a roughly RM20 billion shortfall in federal government revenue from what was budgeted by the previous ruling government last October. That would mean a sizeable jump in deficit in the old budget from RM39.79 billion (2.8% of GDP) if there is no corresponding fall in expenses.

At its peak, collection from the old SST was RM17.2 billion in 2014, up from RM16.01 billion in 2013 and RM15.08 billion in 2012.

Certainly, the working figure would be much higher if we were to annualise the RM8.26 billion collected from January to March 2015, these being the last months before GST took over on April 1 that year (which is probably distorted by advance purchases to avoid the tax).

Compared with the SST collection of RM17.2 billion in 2014, some RM41.2 billion of GST was collected in 2016. It is estimated to be RM41.5 billion in 2017 and was expected to be RM43.8 billion this year.

Will the federal government have better sources of revenue to make up for the shortfall or is there no need because government expenses can be cut? Is debt-fuelled growth going out the window?

Dr Mahathir said last Thursday that the Pakatan Harapan government was concerned about debt and that “a responsible government must try to reduce borrowings. Otherwise, we would be in a bad shape”.

If there is room for expenses to be cut without detriment to growth or government operations, the ruling government needs to communicate that fast, preferably by giving specific examples.

Based on the 10 ministries that Dr Mahathir has announced so far, their number will more than halve from as many as 27 now. This would not only cut wastage due to duplication but also improve policy coordination.

There are those who question whether the civil service and government pensioner register has been vetted for phantom recipients. Cutting such leakage would help the fiscal balance, given that civil servant emoluments and pensions amount to RM103.7 billion or 43% of the RM239.86 billion federal government revenue in the old budget.

If Malaysia has the money, a reduction in the RM30.88 billion debt service charge estimated for 2018 would help the fiscal balance, especially as the government plans to stabilise petrol prices and introduce targeted petrol subsidies.

It remains to be seen if the government’s coffers will receive any of the money that foreign regulators say has been seized from entities alleged to have stolen from 1Malaysia Development Bhd (1MDB). A lawsuit filed by the US Department of Justice in July 2016 sought to seize US$3.5 billion (RM13.8 billion) in assets, including the US$250 million super yacht, Equanimity. Meanwhile, Swiss regulators reportedly seized CHF104 million (RM410 million) in 1MDB-linked money from three banks.

Given that Pakatan Harapan leaders had criticised that too much money was being borrowed and too much revenue was going towards operating expenditure, leaving little for development expenses, they now have the chance to show how things can be done better.

 

 

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