KUALA LUMPUR, Nov 3 — The 2019 budget shows a lack of sustainable revenue measures being proposed to address the Goods and Services Tax (GST)-Sales and Service Tax (SST) shortfall, according to Standard Chartered (StanChart).
It pointed out that expenditure rationalisation and leveraging of assets (for example, the government hopes to raise RM4 billion from selling a 30 per cent stake of the Airport Real Estate Investment Trust that the government intends to set up) were short-term measures.
In the more immediate term, the government may still have to find new revenue measures to address GST removal, in addition to enhancing tax compliance, it said in its “on the ground” Global Research note today in responding to the proposals in the 2019 Budget announced yesterday.
Reliance on oil too has been proven to be vulnerable to the swings in global commodity markets while other new measures in the 2019 budget such as higher real property gains tax and sugar tax will only provide slight support to revenue, it said.
Nevertheless, it is comforting that the government has noted in its medium-term fiscal framework that non-petroleum revenue is still expected to remain the largest revenue source, it added.
According to StanChart, the new government has maintained a fiscal consolidation stance while the increased transparency of the fiscal balance sheet, with the settlement of the income tax and GST refund, were positive.
As for fiscal reforms, among others, the government will be establishing a Debt Management Office to review government debts and liabilities while the Fiscal Responsibility Act is to be proposed by 2021 to avoid uncontrolled spending.
Meantime, the slow fiscal consolidation could add to the risk of negative rating action as the new government intends to lower its fiscal deficit to 3.0 per cent only by 2020.
The 2018 fiscal deficit estimate of 3.7 per cent and the 2019 fiscal deficit forecast of 3.4 per cent are significantly higher than the previous government’s forecasts.
It pointed out that the slower plan would likely decelerate the trend in government debt reduction as Malaysia’s fiscal and debt metrics were weaker than its similarly rated peers and the slower fiscal consolidation would likely further widen the gap.
“We think the slower-then-expected fiscal consolidation increases the risk of negative rating action especially to Moody’s (A3 stable) and Fitch’s (A- stable) ratings.
“These agencies were expecting Malaysia to maintain the fiscal consolidation trend despite the dent in revenue from the replacement of GST by SST,” it explained.
As for forex, StanChart said the Budget announcement was unlikely to be a positive trigger for the ringgit.
Portfolio inflows remained subdued in the months ahead of the budget announcement as foreign investors preferred to wait for more policy clarity from the new administration.
“However, with wider-than-expected fiscal deficit targets and risks of negative rating action, we think it is unlikely that portfolio inflows will pick up meaningfully unless broader risk sentiment reverses,” it said in maintaining its short-term neutral forex weighting on the ringgit. — Bernama