This article first appeared in The Edge Financial Daily on June 1, 2018
PUTRAJAYA: The federal government revenue is expected to fall by RM21 billion with the abolishment of the goods and services tax (GST), said Finance Minister Lim Guan Eng.
It also does not help that despite the rise in global oil prices to an average of US$70 (RM278.60) per barrel, the expected increase in oil-related revenue is estimated at only RM5.4 billion, he added.
As such, Guan Eng told a press conference here yesterday that as an immediate measure, the ministry of finance has identified expenditure savings worth RM10 billion.
“The measures are focused on the review of expenditure, including the downsizing, delaying and abolition of overlapping and non-urgent programmes and projects,” he added.
As part of its reallocation of expenditure priorities, the government will review, defer and renegotiate the projects.
This includes the revocation of projects awarded via direct negotiation or a limited tender exercise, such as a RM350 million contract that was awarded to carry out renovation and rehabilitation of the Sultan Abdul Samad Building in Kuala Lumpur.
“[We will also look at] non-essential operating expenditure comprising professional and consulting services, refurbishment, events and promotional activities, and selected ICT system upgrading, certain big-ticket budget allocations for mega projects such as the Malaysia-Singapore high-speed rail and MRT (mass rapid transit) Line 3, and other expenditure items like special projects under the Internal Coordination Unit, capital injections into various funds, transfers to the authorities of various development corridors and projects paid for under facilitation funds,” he added.
He said in the longer term, the government will save billions when these projects are retendered or scrapped altogether.
In addition, Guan Eng noted that the government’s plans to optimise revenue include the collection of RM5 billion from higher dividends from government-linked companies, such as Khazanah Nasional Bhd, Bank Negara Malaysia and Petroliam Nasional Bhd.
“[We also see] an estimated RM4 billion from the implementation of the [10%] sales and services tax (SST) on Sept 1, 2018. This conservative estimate is due to [the fact] that SST revenue will only be fully realised from November onwards, taking into account the bimonthly tax collection mechanism for local manufacturers.
“However, there will be some changes to the SST from what was implemented in 1972. To replace the GST, the Sales Tax Bill 2018 and the Service Tax Bill 2018 will be tabled in Parliament,” he added.
In the meantime, Guan Eng said the rakyat’s cost of living will improve through the zero-rating of the GST, stabilisation of the RON95 petrol price at RM2.20 per litre and diesel at RM2.18, and the disbursement of Hari Raya special assistance to civil servants (Grade 41 and below) and pensioners amounting to RM700 million.
“These three measures totalling RM20.7 billion will provide a significant boost to consumer spending, and lead to improved consumer optimism and business profits,” he added.
Overall, Guan Eng said the estimated impact and mitigation measures will maintain the deficit level at 2.8% as targeted for 2018, but there would be no revision of the gross domestic product growth forecast because the fundamentals of the economy remain strong.
“The projected fiscal deficit will increase to RM40.1 billion from RM39.8 billion. In other words, these measures will bring out a net effect of raising our fiscal deficit by RM300 million. This increase will maintain the government’s budget deficit at 2.8% of gross domestic product.
“In addition, the government’s current balance (government revenue less operating expenditure) will also remain positive,” he added.