PUTRAJAYA, Jan 10 — Malaysia is in no danger of missing its deficit reduction targets for 2018 as higher than expected tax collections have bolstered the government’s coffers, Finance Minister Lim Guan Eng said today.
Dismissing a financial report predicting that the country’s overspending could have worsened last year, Lim then gave his assurance that Putrajaya remained on track to bring the federal deficit down to 3.7 per cent in 2018 and 3.4 per cent this year.
“Nomura Global Research’s report that the 2018 fiscal deficit would deteriorate to 3.9 per cent of GDP is simply untrue, I can vouch that in 2018, fiscal deficit will be well within 3.7 per cent.
“Furthermore, Sales and Services Tax (SST) collection exceeded our initial projection by 34 per cent at RM5.4 billion, compared to the projected figure of RM4 billion,” he told reporters here.
Lim said that the RM5,365 million or nearly RM5.4 billion figure, as of December 31, 2018, was based on the SST collections received in the months of November and December.
He explained the government’s collection of SST, which was brought back on September 1, only comes in two months later.
Lim said the government has targeted its budget deficit to be 3 per cent in 2020 and to be below 2.8 per cent in 2021 with the three-year recovery phase to be over by then.
Lim also sought to counter Nomura’s decision to downgrade Malaysian equities due to concerns over an alleged lack of “major expansionary reforms”, asserting that the government is currently undertaking multiple structural reforms.
He listed these major reforms as including the use of the zero-based budgeting method for more efficiency in government spending, using open tender in all ministries since last year for greater transparency, savings of over RM27 billion by reprioritising mega infrastructure projects, as well as the formation of the Tax Reforms Committee and Public Finance Committee.
“The government has been upfront that the fiscal reforms will take three years to complete,” he said, noting that the top credit rating agencies of Fitch Ratings, Moody’s and S&P were similarly informed of the timeframe.
“All three credit ratings agencies understand the amount of time required to carry out the reforms and as a result, they have maintained the government’s credit ratings at A3 or A-, especially when the current government has been more transparent about its fiscal position and financial obligations than the previous administration,” he said.
Lim also argued that crude oil prices should not be of concern as to whether Malaysia will meet its budget deficit targets, noting that the Malaysian government has become less reliant on petroleum revenue than it was in the past.
He said petroleum revenue accounted for 41.3 per cent of government income in 2009, but noted that it only accounts for 19.5 per cent of government income this year apart from a one-off RM30 billion in special dividend from Petronas to partially fund the unpaid GST and income tax refunds owed to taxpayers.
“Analysts should take the low energy prices within this context, as well as the fact that the government is introducing new measures like the soda tax and the sales of non-core, non-strategic assets that are not accounted for in the fiscal deficit numbers,” he said.
Lim said these measures would be sufficient to act as a “comfortable buffer” if the average Brent crude oil prices remain within the range of US$50-US$70 per barrel.
At the time of writing, crude oil prices are at US$60.90 per barrel.
Lim also noted that the government will not have to recalibrate Budget 2019 if the oil prices do not go below US$50 per barrel.
“As long as it doesn’t go too low, the Budget will still hold,” he said
He pointed out that the government similarly did not recalibrate the 2019 budget — which was drawn up when oil prices were US$52 per barrel — when oil prices rose.
Even with the latter increase in oil prices, Lim said it did not necessarily mean more funds for the government to spend, as it also had to pay more for fuel subsidies.
“And don’t forget we had a supply shock because of a breakdown in our oil and gas fields in Sabah, so we couldn’t benefit fully as well.
“So, on the one hand, we hope to get more, we didn’t get more. But on the other hand, we have to pay more because of the petrol subsidies,” he said.
Lim also dismissed a report today by news wire Bloomberg which said Malaysia had selected several banks to arrange for the issuing of Samurai bonds or loans denominated in the Japanese currency yen.
“That report is not true, we will make the final decision and announcement next week. And we will also ask the Japanese investors to be present also,” he said.