KUALA LUMPUR, Oct 26 — The government does not need to trim the size of the country's civil service to save on public spending, a minister said today.
Youth and Sports Minister Khairy Jamaluddin said cost saving can be done in different ways without having to lay off some of the 1.4 million civil servants on the federal government's payroll.
“There are other ways for saving, for instance we can start looking at the AG's report and improve on our expenditure practices and procurement practices to increase savings,” he said, referring to the Auditor-General's annual report on government spending.
“Also in terms of revenue collection, such as the income tax department and the Customs ... there is still a lot of smuggling, cigarette smuggling, a lot of other smuggling. Better enforcement can increase revenue through existing methods,” he added.
Prime Minister Datuk Seri Najib Razak's administration has come under sharp criticism after he announced the introduction of Goods and Service Tax (GST), which will start off at 6 per cent in April 2015 and apply to all but a select list of basic food items and services.
While some analysts found merit behind the implementation of GST, they argued that the benefits of the new tax system would be negated by continued over-spending by the government.
Dr Lim Teck Ghee, who heads the Centre for Policy Initiatives think-tank, said Budget 2014's expenditure of RM264 billion shows the lack of attention paid to public issues of wastage of funds, over-expenditure and excesses in government spending.
He argued that the country could gain significant savings if the government were to push a 15 per cent reduction in size of the existing civil service, which currently costs some RM60 billion in wages annually.
Opponents of the GST also claimed that the new tax system would burden the lower income groups due to the expected increase in the price of goods.
Khairy acknowledged that prices will likely increase across the board once GST is implemented, but noted that it is unlikely to spiral out of control.
“We do expect a slight one-off increase, but beyond that we don't see a sustained inflationary effect from the GST. There are many items on the exclusion list, such as basic food items and basic services, so we feel that the inflationary consequences will be minimal.
“At the same time, income support for the low income group through BR1M will be continued, so hopefully that can cushion the impact,” he said, referring to the government's annual Bantuan Rakyat 1Malaysia aid scheme for Malaysians in the low income group.
Putrajaya came under pressure to address its chronic deficit when ratings firm Fitch downgraded the country’s sovereign debt outlook from “Stable” to “Negative” in July, citing weaker appetite for reforms following Barisan Nasional’s reduced mandate in Election 2013 and poor public finances.
Among the key changes demanded by the ratings firms was for a broadening of the country’s tax base such as via the introduction of the GST.
During his Budget speech yesterday, Najib said the time was right to introduce the tax that was first mooted in 2005 but was put off repeatedly until its announcement yesterday owing to fierce public resistance.
The GST is a consumption tax, meaning all Malaysians will be taxed according to their level of spending, regardless of income. This differs from income tax that is only applicable after a certain salary level is exceeded.
Malaysia’s proposed GST rate of 6 per cent is the lowest in the region, whereas most countries implement a 10 per cent value added tax (VAT).
The tax was first announced during Budget 2005 and was originally scheduled to be implemented in 2007 before it was deferred.
The GST Bill was then tabled for the first reading in 2009 for implementation in late 2011, but was withdrawn during the second reading in 2010 following fierce public resistance.
