KUALA LUMPUR, Nov 2 ― The government said today it was able to offset the loss of revenue from abolishing the Goods and Services Tax (GST) through a combination of the Sales and Services Tax (GST), an increase in oil income, and cost-cutting.

Despite that, however, additional expenditure mostly for civil service bonuses and infrastructure projects caused Putrajaya to revise its initial fiscal deficit-to-gross domestic product (GDP) ratio from 2.8 per cent to 3.7 per cent.

In the Fiscal Outlook 2019 report released today, the government said the abolition of GST led to a RM21-billion reduction in revenue.

The drop was cushioned by RM14.5 billion raised through the SST, and RM7 billion in dividends from state oil firm Petronas.

In addition, Putrajaya said it also managed to save RM6.3 billion in net spending.

Added expenditure items that forced the higher deficit include special cash assistance to civil servants (RM2.7 billion), acquisition of the Eastern Dispersal Link (EDL) highway (RM1.3 billion), LRT3 project and Electrified Double Track Project (RM2.3 billion), and allocations for sewerage infrastructure, repairs and maintenance (RM9.5 billion).

Overall, the government predicted that its full-year revenue to be RM236.5 billion, a 7.3 per cent increase from 2017, as a result of higher direct collections and non-tax income.

Direct tax collection rose by 15 per cent this year, notably higher than last year’s 5.9 per cent improvement.

The improvement in non-tax revenue was even more marked, rising by 44.5 per cent this year compared to a fall of 0.8 per cent last year.

Indirect tax collections were the biggest drag on the government’s accounts, falling 33.1 per cent due largely to the zero-rating of the GST in June and the resulting three-month tax holiday until the SST arrived.

For next year, Putrajaya is targeting to lower the deficit to 3.4 per cent of the economy.

Last month when tabling the revised 11th Malaysia Plan, Prime Minister Tun Dr Mahathir Mohamad said Putrajaya is aiming for the budget deficit to be 3 per cent by 2020, abandoning the previous targets of a balanced Budget by then.