Gradual path for consolidation, debate on GST may resurface - economist
10 Oct 2022 10:45am
Image for illustrative purposes only - 123RF
In Budget 2023, total revenue projections point to deterioration as a percentage of gross domestic product (GDP) versus 2023’s 15 per cent of GDP.
Total revenue in 2023 is expected to decrease by 4.4 per cent year-on-year to RM272.6 billion.
Petroleum-related revenue is expected to average 2.7 per cent of GDP, implying an average of 2.5 per cent of GDP in 2024-2025, likely achievable even assuming a lower Petronas dividend contribution of RM25 billion.
"Non-oil revenue is estimated at 12.0 per cent of GDP over 2023-2025, implying an average of 12.1 per cent of GDP in 2024-2025, which is significantly lower than the peak of close to 15 per cent of GDP in 2015-2016. Hence, debate on the GST may resurface in the coming years,” he said in a recent research note.
Finance Minister Tengku Datuk Seri Zafrul Aziz had said that the possibility of reviving the tax will only be discussed in 2023.
"With revenue to GDP the lowest since at least 2005 and questions arising on new revenue sources, the GST debate may resurface in 2023.
"The sales and service tax (SST) has averaged 1.8 per cent of GDP over the past five years, less than the 3.3 per cent of GDP worth of GST collections in 2016-2017,” he said.
As the economy recovers, the government projects the fiscal deficit to narrow over the next few years to 4.4 per cent of GDP in the Medium-Term Fiscal Framework (MTFF) 2023-2025 from 5.0 per cent in MTFF 2022-2024.
This implies an average fiscal deficit of 3.8-3.9 per cent of GDP in 2024-2025.
The Ministry of Finance is embarking on a gradual fiscal consolidation path as it expects the budget deficit to reduce to -5.5 per cent of GDP in 2023 versus -5.8 per cent this year.
"We opine the fiscal deficit of -5.5 per cent of GDP is attainable on the assumption that the economy continues to expand,” said Hong Leong Investment Bank Bhd Research.
It said the government reiterated its commitment towards consolidating the fiscal position in the medium term and that this will be accelerated once inflationary pressure dissipates and the economy fully recovers.
The government may also extend the statutory debt limit of 65 per cent of GDP in the medium term after the expiry of the Temporary Measures for Government Financing (Covid-19) Act on Dec 31, 2022.
Following the enactment of the Act, the government was allowed to increase the statutory debt ceiling from 55 per cent to 65 per cent until end-2022.
However, the government projects overall debt to be around 65 per cent of GDP while statutory debt at 63 per cent of GDP by end-2023.
In line with this, the government said they may extend the statutory debt limit of 65 per cent of GDP in the medium term after Dec 31, 2022.
As at end-Jun 2022, statutory debt, which comprises outstanding Malaysian Government Securities (MGS), Malaysian Government Investment Issues (MGII) and Malaysia Islamic Treasury Bills (MITB), stood at RM989 billion or 57.8 per cent of GDP (2021: 59.7 per cent), within the 65 per cent statutory threshold.
Other debt legislative guidelines, pertaining to Malaysian Treasury Bills (MTB) and offshore borrowings, remained within the stipulated limits under their respective Acts. - BERNAMA
