Analysts expect major cuts in upcoming Budget 2019

KOTA KINABALU: Analysts expect an austere fiscal budget for 2019, with major changes expected especially on the government’s expenditure given the gap in revenue from the replacement of the goods and services tax (GST) with the sales and services tax (SST).

RHB Research Sdn Bhd (RHB Research) in its ‘Economic Outlook’ report, said: “We expect major changes for the 2019 budget especially on expenditure as the government experiences a shortfall in revenue from the replacement of GST with SST (about RM21 billion or 1.4 per cent of GDP) as well as allowing companies to offset income tax returns owed in previous years against taxes payable in coming years, which will result in lower tax collection in the coming years.”

As it stands, according to reports by Bernama, the government has reported a total of RM19.2 billion delayed GST refunds while reports by the Edge said that the government reported another RM16.05 billion in excess income tax and real property gains tax which were not refunded to 1.65 million taxpayers over the last six years.

“The government has subsequently allowed taxpayers who have been owed tax refunds to apply to offset this against income tax that is payable for the current year,” it noted. On the GST refunds, the Federal government said it is commited to returning the GST refunds beginning next year.

“This could mean another gap that needs (RM35.3 billion of 2.5 per cent of GDP) to be plugged by the government.

“Although it did not indicate whether the refunds would all be paid out in a single year, we think it will happen gradually over a few years,” RHB Research said.

However, even if the payback period is stretched out to three to five years, the research team warned that the annual payment of GST and income tax refunds would still be substantial at RM7.1 billion to RM11.8 billion (about 0.5 to 0.8 per cent of GDP).

“Given such challenges faced by the government and under the scrutiny of international rating agencies, we think the government will find reducing the budget deficit from the current 2.8 per cent of GDP rather difficult.

“As such, we think the Government may not have a choice but to tighten its expenditure further,” RHB Research opined.

On possible methods of reducing the government’s expenditure, RHB Research believed that the government’s move to start using the zero-based budgeting method for its ministries and departments must be justified for each new period of tenders as it ensures that every function within the government is analysed in terms of needs and costs.