Malaysia budget targets more subsidy cuts in debt-reduction bid

[Kuala Lumpur] Malaysia's premier said Friday his government would continue to make unpopular cuts to subsidies that have kept prices of key consumer items in check but which have helped fuel worryingly high levels of debt in Southeast Asia's third-largest economy.

The lower subsidy outlays were contained in a budget tabled in parliament by Prime Minister Najib Razak that also forecast solid economic growth of between 5-6 per cent this year and next.

After years of massive populist spending leading up to general elections last year, the task of corralling a growing debt has emerged as a top economic priority.

Subsidies have already been reduced on items including fuel and sugar, and the government plans to introduce a Goods and Services Tax (GST) from next April that it says will boost coffers by improving tax collection.

A Finance Ministry report submitted along with the budget said subsidy allocations would be reduced to US$11.6 billion in 2015, down 7.1 per cent.

"Consolidating the fiscal deficit is a moral responsibility of our generation," Mr Najib, who also is finance minister, told parliament.

"We do not want future Malaysians to inherit a country burdened with government debt." Malaysia has one of Asia's highest debt-to-GDP ratios, hovering just below a 55 per cent red line that the government says will not be crossed.

The finance ministry report said the ratio was at 52.8 per cent in June, but gave no forecast for the year ahead.

Last year Fitch ratings agency warned Malaysia to get its house in order or face a possible sovereign-debt downgrade.

Malaysian consumers have come to expect the subsidy cushion, and reducing it has triggered public anger.

Critics also fear the GST will add further to living costs.

Mr Najib said the government would continue a programme of cash handouts to lower income citizens and that the GST would not be applied to some key items such as petrol.

The government's fiscal deficit was forecast to further decline to 3.0 per cent of GDP, from 3.5 per cent this year, and 3.9 per cent in 2013, the finance ministry report said.

Opposition member of parliament Tony Pua called the budget information a smoke screen, saying much of the government's spending was being hidden off the budget.

The government was using "innovative accounting loopholes to continue big spending and racking up billions of ringgit" that does not show up in key debt benchmarks, Pua said.

-AFP