Malaysia will maintain a fiscal deficit of 2.8 per cent to the GDP despite losing RM21 billion (S$7 billion) in government revenue by scrapping the unpopular goods and services tax (GST), Finance Minister Lim Guan Eng said yesterday, as the Treasury aims to collect income from other sources.
Analysts have said abolishing the 6 per cent GST from today would result in a big hole in the federal budget, and widen the deficit from the 2.8 per cent gap this year targeted by the previous government.
But Mr Lim said the Treasury expects to earn new revenues from several sources, including the reintroduction of the sales and services tax (SST) on Sept 1.
The government also expects to reap higher dividends totalling RM5 billion from state bodies such as sovereign wealth fund Khazanah, Bank Negara and national oil firm Petronas.
On top of this, he told reporters, would be RM5.4 billion in revenue from corporate and petroleum income taxes because of rising global oil prices. Oil prices have risen from the US$52 a barrel estimated in Malaysia's October budget to US$70 now.
To curb spending, the new Malaysian government has identified RM10 billion worth of expenditure cuts, including taking steps to downsize, delay or scrap expensive projects and non-urgent spending.
"We are mindful that federal government debt, which has exceeded RM1 trillion, requires fiscal discipline," Mr Lim told a news conference. He said the government's projected fiscal deficit would increase slightly from RM39.8 billion to RM40.1 billion in 2018, which would keep the budget deficit at 2.8 per cent of gross domestic product.
The government has in recent days announced the cancellation of the Kuala Lumpur-Singapore high-speed rail project that it estimated would cost RM110 billion, and the Klang Valley MRT Line 3 which analysts said would cost RM30 billion to RM40 billion.
Mr Lim said the Pakatan Harapan government will likely table a "mini-budget" when Parliament reopens at the end of this month.
The government expects the imminent removal of the GST and the return of the SST to result in savings of RM17 billion that will be passed back to the public.
"The SST will be tabled in Parliament and is slated to start on Sept 1, 2018. This is expected to return RM17 billion to ordinary Malaysians for the rest of the year," the Finance Minister said.
The SST, Mr Lim said, will contribute RM4 billion to government coffers this year. Tun Daim Zainuddin, head of the Council of Eminent Persons that advises the government on economic issues, had said on May 18 that the SST is expected to contribute RM30 billion in a calendar year.
Aiming to assuage investors, Mr Lim said: "Despite the fiscal pressures, the fundamentals of the economy remain strong. The banking sector is well-capitalised with low non-performing loans ratio and there is sufficient liquidity in the capital markets."