KUALA LUMPUR: While the implementation of the goods and services tax (GST) today will help the government collect more revenue, there should also be emphasis placed on its spending too, economists said.

“It’s good that the GST will bring in more to the government coffers; however, the government should also spend prudently. Leakages should be minimised, because if the [budget] deficit continues, then people will continue to have to pay more,” independent economist Lee Heng Guie told The Edge Financial Daily, referring to the country’s budget deficit since 1998. 

The government aims to narrow the budget deficit to gross domestic product (GDP) ratio to 3.2% by this year.  

This was revised from 3% to 3.2% when the government announced a revised Budget 2015 in January due to the sharp falling oil prices. 

Meanwhile, the implementation of the GST will see the tax revenue base of the country widen and this can help the government reduce its dependency on the oil and gas revenue, according to Dr Yeah Kim Leng, economist and dean of the school of business at the Malaysia University of Science and Technology.  

He said the 3.2% revised deficit target this year would be “more achievable”, provided the government spends more prudently.

“People can now ask the government to be more prudent in their spending as all of them contribute to the government’s revenue, whether they are rich or poor,” he said.

Lee also said that while most businesses seemed prepared for the GST, there are still negotiations between traders and the authorities as to the items to be added to the exempt category.

“Malaysia’s GST system is quite different in the sense that there are different categories with numerous items, and consumer awareness is not 100%.

“I agree with the comments made by Rafidah [Aziz] that things should be made clear for the consumers as to what items will incur the GST and what will not,” he said.

Lee was referring to comments made by former international trade and industry minister Tan Sri Rafidah Aziz, who was reported yesterday as saying a clear list of tax-exempted items should be published immediately in all newspapers.

On consumer spending, Lee said the pre-GST spending rush had been anticipated, and it would likely take at least two quarters to see how households will adjust.

“Hopefully it won’t be an extended period of adjustment. I think the first-quarter spending will still be OK, as there was the Chinese New Year celebration in addition to the spending rush, but the clarity of spending patterns will only come later,” he said.

Yeah said a slowdown in consumer spending may be expected in April and May, with a normalisation after that.   

“Private consumption spending this year would grow between 6% and 6.5%,” he said. 

According to Bank Negara Malaysia’s annual report 2014, private consumption grew 7.1% last year. Private consumption is expected to grow 6% in 2015.

“There will be a one-off increase in the cost of living after the implementation of the GST,” he said, adding that the impact on the consumer price index would only be evident a couple of months later. 

“Overall, the price increase is still manageable. It is still within households’ ability to manage the increase in prices except for the low income group,” he said.

On the other hand, Yeah does not expect the implementation of the GST will have an impact on the economy as the fundamentals still remain strong. 

“There is no concern about people holding back their spending. The economy is enjoying full employment now. We have a young, growing population with stable income,” he explained. 

He said the financial condition of the country is stable, with relatively low interest rates. 

Another economist who declined to be named, however, said there would be an expected softening in the economy over the second and third quarter this year, before finally stabilising in the fourth quarter.

“There is always resistance to change. In the first year of implementation, I don’t think we will see much of a benefit from the tax, perhaps a net collection of about RM600 million, but I think the second year will be better,” he said. 

The GST is estimated to bring in RM22 billion in government revenue annually. 

However, from the net tax revenue foregone from the sales and service tax as well as GST-free-expanded list, there will be RM5.6 billion left. This year, another RM4.9 billion has been allocated for the 1Malaysia People’s Aid (BR1M) programme to ease the GST burden on households.

This article first appeared in The Edge Financial Daily, on April 1, 2015.