New revenue sources needed to cut Govt deficit

Lesser Govt involvement in production, private sector will help boost its coffers


KUALA LUMPUR: The Government will have to look at new revenue sources to help raise its coffers as it seeks to reduce its fiscal deficit in the coming years.

While economists do not expect the goods and services tax (GST) to be implemented for another year or two, there are other channels that the Government could tap into.

“Lesser government involvement in production and private sectors such as a faster pace of divestment in government-linked companies will help to raise its coffers,” RAM Holdings Bhd group chief economist Dr Yeah Kim Leng told StarBiz yesterday.

In terms of development expenditures, the Government could utilise the public-private partnerships and privatisation programmes to help ease its financing burden, he added.

It is expected that the Government may table a bigger budget for 2011 as it seeks to allocate more funds to kick off the Economic Transformation Programme (ETP) projects.

Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said last week, a bigger budget could be allocated as the Government expected higher revenues next year, although he did not elaborate.

The private sector is said to invest the bulk of the RM1.4 trillion worth of ETP projects with the Government aiming to provide 8% of the total funding.

“The fiscal consolidation is expected to be gradual. The upcoming budget 2011 will still remain fiscal supportive in terms of helping to rebalance demand,” said CIMB Investment Bank Bhd economic research head Lee Heng Guie, adding that his estimation for fiscal deficit in 2011 was 5.3% of the GDP.

Under the 10th Malaysia Plan (10MP), the Government aims to reduce the fiscal deficit from 5.3% of gross domestic product (GDP) in 2010 to 2.8% by the end of the plan duration in 2015.

The country’s fiscal deficit ballooned last year to 7.4% of GDP led by a global economic downturn, which pushed the Government to introduce two stimulus packages amounting to RM67bil.

Economists expect the fiscal pullback to be done gradually so as to avoid dampening the economic recovery.

“A concern is that too rapid a reduction (in government spending) may have a negative impact on growth – there should be a judicious balance between cutback on spending and sustaining growth,” said Yeah.

The Government plans to continue with development spending and has allocated RM230 mil under the 10MP to move the country into a high-income economy.

“This year’s fiscal target is likely to be met, given that the economy is to perform above expectations and growth is seen to exceed projections. There could be a lower deficit this year because GDP (growth) is to be larger than earlier estimated,” said Yeah.

Bank Negara has previously said that Malaysia’s GDP growth could exceed 6% this year. For the first half of the year, the country’s economy grew 9.5%.

The 10MP pushes for a high-income, high-productivity economy with an average GDP growth of 6% per year.

Economists also said that Government expenditure could be reduced through the subsidy rationalisation plan as it allowed for greater efficiency in its spending and working towards achieving a balance budget.

“We are in a better position now to absorb a faster pace of subsidy reduction,” said Yeah.

He also said the Government should provide a timeline on when the GST would be implemented in the upcoming Budget 2011. “While oil and gas accounts for some 40% of government revenue currently, this will decline in the coming years and therefore, the implementation of GST needs to kick in soon.”