KUALA LUMPUR, Sept 30 — Malaysia’s plan to cut its budget deficit by almost half over the next five years will be hampered if the economy expands at a slower pace than expected, a report by the Economist Intelligence Unit says.
The government aims to improve the nation’s fiscal balance from 5.3 per cent to 2.8 per cent by 2015, on the assumption that real GDP growth will register an average of six per cent per year.
“Owing to our projections for real GDP growth, which are lower than the government’s forecasts, the budget deficit is expected to remain wider than 3 per cent throughout 2010-14,” the Economist Intelligence Unit country report for October said.
However, the report was confident that Malaysia will have “some success” in making large cuts in operating expenditure, despite predicting GDP growth of 4.9 per cent a year.
Malaysia’s budget deficit hit a more than 20-year high of 7.4 per cent of GDP in 2009 after the government pumped in RM67 billion of stimulus to help the economy weather the global downturn.
The Economist Intelligence Unit report also expects Malaysia to focus on widening the tax base and restructuring subsidies to lessen impact on low-income groups, as part of the country’s fiscal reform efforts.
“A widening of the tax base is expected to be achieved through the introduction of a goods and services tax (GST), although this is likely to be hampered by complaints from households and businesses,” it said.
The plan met strong public opposition when mooted, which forced the government to delay tabling the GST bill to Parliament in March as originally intended.
Deputy Finance Minister Datuk Dr Awang Adek Hussin was forced to assure the public in June that the government had no intention of raising GST from the proposed 4 per cent to 10 per cent over the next 10 years, amid fears of a tax hike.
The replacement of the existing sales and services tax (SST) with GST — expected to bring in RM8.8 billion — is part of measures to reduce Malaysia’s dependence on oil revenue, which accounts for almost half of government income.
The government aims to improve the nation’s fiscal balance from 5.3 per cent to 2.8 per cent by 2015, on the assumption that real GDP growth will register an average of six per cent per year.
“Owing to our projections for real GDP growth, which are lower than the government’s forecasts, the budget deficit is expected to remain wider than 3 per cent throughout 2010-14,” the Economist Intelligence Unit country report for October said.
However, the report was confident that Malaysia will have “some success” in making large cuts in operating expenditure, despite predicting GDP growth of 4.9 per cent a year.
Malaysia’s budget deficit hit a more than 20-year high of 7.4 per cent of GDP in 2009 after the government pumped in RM67 billion of stimulus to help the economy weather the global downturn.
The Economist Intelligence Unit report also expects Malaysia to focus on widening the tax base and restructuring subsidies to lessen impact on low-income groups, as part of the country’s fiscal reform efforts.
“A widening of the tax base is expected to be achieved through the introduction of a goods and services tax (GST), although this is likely to be hampered by complaints from households and businesses,” it said.
The plan met strong public opposition when mooted, which forced the government to delay tabling the GST bill to Parliament in March as originally intended.
Deputy Finance Minister Datuk Dr Awang Adek Hussin was forced to assure the public in June that the government had no intention of raising GST from the proposed 4 per cent to 10 per cent over the next 10 years, amid fears of a tax hike.
The replacement of the existing sales and services tax (SST) with GST — expected to bring in RM8.8 billion — is part of measures to reduce Malaysia’s dependence on oil revenue, which accounts for almost half of government income.
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