Extra funding won’t hit efforts to cut deficit

> Economists: Additional RM7b spending under Budget 2017 will be offset by higher oil revenue and tax collection

PETALING JAYA: The tabling of a supplementary budget bill is unlikely to hinder the government from achieving its fiscal deficit target of 2.8% of the gross domestic product (GDP) in 2018 given better revenue collection, say economists.

In a supplementary budget bill tabled in Parliament on Monday, Putrajaya sought approval for an additional RM7.12 billion under Budget 2017 for the purpose of covering “additional expenditure on services and expenses”. In October 2016, Prime Minister Datuk Seri Najib Abdul Razak tabled a RM260.8 billion Budget 2017.

Economists are of the view that the supplementary budget will not affect the government’s target of reducing fiscal deficit to 2.8% this year.

Sunway University Business School Professor of Economics Dr Yeah Kim Leng and RHB Research Institute economist Vincent Loo Yeong Hong noted that higher revenue from crude oil due to recovery of crude oil prices and higher tax collection will ensure that the target is within reach.

“Given that the supplementary budget will be partly offset by higher revenue collection due to a more buoyant economy, the fiscal deficit target of 2.8% of GDP is likely to be met. Another key factor helping the government to achieve the deficit target is that the GDP denominator expanded strongly at 9.9% last year, thereby shrinking the debt-to-GDP ratio,” Yeah told SunBiz.

Adding that the budget deficit was at RM39.9 billion or 3% of the GDP in 2017, Loo said higher expenditure is covered from the higher-than-expected revenue from other sources.

He said the government, which has been tabling a supplementary budget since 2009, has a track record of staying within its deficit numbers since 2011.

Nonetheless, Yeah believes the need for a supplementary budget will be reduced this year on the back of the achievable total revenue target of RM240 billion with no spending surprises.

Institute of Democracy and Economic Affairs acting CEO Ali Salman pointed out that the supplementary budget has seen a downward trend.

“The supplementary budget this year is higher than last year’s, but the federal government has substantially reduced the supplementary budget from the range of RM16 billion to RM7.1 billion over last five years. This should be seen as a positive development in the backdrop of reducing fiscal deficit, which will help the government achieve its macroeconomic targets,” he said.

Last year, the government sought an extra RM3.1 billion under Budget 2016.