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KL plans new taxes to shore up state budget that's burdened by debt

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Malaysia will devise new taxes soon to shore up a state budget that's been constrained by debt and changes to the consumption levy, Prime Minister Mahathir Mohamad said.

Kuala Lumpur

MALAYSIA will devise new taxes soon to shore up a state budget that's been constrained by debt and changes to the consumption levy, Prime Minister Mahathir Mohamad said.

The government may also have to sell assets to raise money to pay "huge debt", he said at a forum in Kuala Lumpur, adding that he believes foreign investment will still come and contribute to the nation's economic growth. The new measures will be announced as part of a budget speech planned for Nov 2, Finance Minister Lim Guan Eng said at the same forum.

The South-east Asian nation is grappling with debt and liabilities exceeding one trillion ringgit (S$333.5 billion), worsened by state guarantees on notes issued by troubled fund 1MDB, and the replacement of a sweeping consumer tax with a more selective levy.

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Dr Mahathir has reviewed billion-dollar transportation projects, and cancelled or deferred many of them for being too costly. On Sunday, the government said it pared the cost of an almost US$14-billion mass-rapid transit project.

In the short term, it would be "foolish" for the current government, which took power in May, to abide by "unrealistic" fiscal targets set by the previous administration, Mr Lim said on Tuesday. Budget consolidation won't be easy as Malaysia will need three years to resolve the issues resulting from 1MDB and billions of ringgit in possibly missing tax refunds, he said.

"Over the medium term, however, we will remain strictly on the path of fiscal consolidation." The Najib government had forecast fiscal deficit of 2.8 per cent this year, lower than last year's 3 per cent.

The finance minister had told Reuters in an interview in June that Malaysia can achieve 2.8 per cent this year but reducing it further would be a challenge. BLOOMBERG