Malaysia vows to meet deficit target, plug US$5b tax hole

[KUALA LUMPUR] Malaysia will be able to meet its budget deficit target for 2018 even though the scrapping of a goods and services tax will blow a US$5 billion hole in the government's wallet, the finance minister said on Thursday.

Swept to a shock win in May 9 elections on pledges to tackle rising living costs and high-level corruption, the new coalition has set its sights on cutting an estimated 1 trillion ringgit (S$336.1 billion) of debt it blames on abuses by scandal-tainted Najib Razak's previous administration.

First, however, on Friday it will fulfil a campaign promise to scrap a much-maligned GST introduced in 2015.

Finance Minister Lim Guan Eng said that the 21 billion ringgit in lost revenue this year from the tax's scrapping would be offset by rising oil-related income, spending cuts on non-essential projects, increased dividends from government-linked firms and a new sales tax expected to be introduced in September.

"We are mindful that Federal Government debt which has exceeded RM1 trillion, requires fiscal discipline," Mr Lim told a news conference.

He said the government's projected fiscal deficit would increase slightly to 40.1 billion ringgit in 2018 from 39.8 billion ringgit, which would maintain the deficit at 2.8 per cent of GDP.

He said there were no plans to revise economic growth forecasts for now.

When asked about a possible public listing of state petroleum firm Petronas as an option for raising funds, Mr Lim said this idea "has not been put forward to the government".

He said higher dividends from government-linked entities such as Petronas, sovereign wealth fund Khazanah Nasional Berhad and the central bank could deliver an extra 5 billion ringgit this year. That would be alongside 5.4 billion ringgit of extra tax revenue from oil companies in Malaysia, and 10 billion ringgit saved through reviews of high-priced projects.

A sales tax due to be introduced on Sept 1 will add an additional 4 billion ringgit to the public purse this year, he said.

On troubled state fund 1Malaysia Development Berhad (1MDB), Mr Lim said the ministry "reluctantly" paid a 143.75 million ringgit  1MDB bond coupon this week.

The new govt has said the fund - set up nearly a decade ago - has been insolvent for more than a year. It has pledged to keep honouring all payments due on its debt.

Malaysia has also made it a priority to find out how billions went missing from 1MDB, and anti-graft agents have quizzed ex-premier Najib over his alleged role.

Mr Najib has consistently denied any wrongdoing.

A task force investigating 1MDB said on Thursday it is working with counterparts in Singapore to retrieve funds believed to have been misappropriated.

REUTERS