Putrajaya to press on with GST, subsidy cuts, says Idris Jala

KUALA LUMPUR, Sept 26 ― The government will push ahead with the controversial goods and services tax (GST) and make further reductions in subsidies to cut the country’s fiscal deficit, Datuk Seri Idris Jala has said.

His remarks published by the Wall Street Journal (WSJ) today came even though Datuk Seri Najib Razak is not likely to introduce the fiscal reforms in his Budget 2013 speech this Friday to avoid losing votes in the election set to be called within months.

But Jala, who is minister in charge of the government’s efficiency unit PEMANDU, told WSJ that he expected the proposed GST to help boost government revenue and, together with plans to reduce some subsidies, to put an end to its fiscal deficit by 2020.

Malaysia swung to a budget deficit in 1998 after the Asian financial crisis battered its finances, and has yet to return to a fiscal surplus. It has also been weighing the GST for more than a year.

Jala said Malaysia aimed to cut its fiscal deficit to 2.8 per cent of gross domestic product (GDP) by 2015, and is on track to narrow the budget gap every year through 2020.

The fiscal deficit is expected to fall to 4.7 per cent in 2012 from 5.4 per cent last year, but would still be the widest in Asia after India and excluding Japan, WSJ reported.

“The good news is that Malaysia’s position at [the] operating level is running at surplus… we have enough revenue to cover that… but when you want to build [infrastructure] and invest in something new [to expand capacity], that’s when you borrow,” Jala said.

Under the proposed GST, more items will be taxed while Malaysia could cut its reliance on revenue from petroleum, corporate tax and customs duties.

Only 5.6 per cent of Malaysians pay income tax and GST will shift the burden to more Malaysians.

But the idea of widening the tax base has made Barisan Nasional (BN) nervous about introducing the consumption tax as a promised cut in income tax will have little effect on the majority of Malaysians who do not pay taxes now.

Pakatan Rakyat (PR) politicians have already taken the populist approach by opposing the GST, making it tougher for a BN government to introduce the new tax without winning a strong mandate at the next general elections.

“We are currently educating the public about the goods-and-services tax,” Jala told WSJ.

The government estimates that a 7 per cent tax rate will increase its revenue by RM25.3 billion a year.

According the WSJ, national oil company Petronas is now the single biggest tax contributor, accounting for 40 per cent of the government’s revenue.

But Petronas wants to limit its dividend payments to the government to 30 per cent of its annual profit instead of a contribution of around RM30 billion a year, citing its need to expand and secure energy assets overseas.

“We’re discussing [the dividend policy] with Petronas, but we agree that they do need to invest,” Jala said.

The minister said the government also wanted to cut its subsidy payments for fuels, fertiliser and food to help shrink its budget deficit.

But the reforms Jala spoke of are not likely to happen soon.

Najib’s bid to boost voter support for his BN coalition ahead of polls may see more handouts to the lower-income groups and civil servants that will likely take a toll on Malaysia’s tackling of its chronic budget deficit, Bloomberg reported today.

Citing eight economists it had polled recently ahead of the 2013 Budget announcement this Friday, the international business wire service reported that Malaysia will likely post a deficit estimated at 4.3 per cent of its gross domestic product (GDP) ― going over the four per cent line for the sixth year despite the government’s 4.7 per cent gap last year.