Johan: Budget is not expansionary

Budget director: It is rather contractionary in nature

KUALA LUMPUR: Budget 2019 is not expansionary as it initially appears to be, but rather contractionary in nature, according to the Finance Ministry’s budget director Johan Mahmood Merican ( pic).

“In the context of consolidation, what might appear as slightly confusing is that if you look at the operating and development expenditure, it may at first glance look expansionary because you do see operating expenditure which increases from RM235.5bil to up to RM259.8bil. It does appear to be expansionary but in reality the budget numbers include a RM37bil repayment of overdue GST and income tax refunds,” Johan said.

“As Finance Minister Lim Guan Eng has spoken about it to some extent, on the result of past underprovision of refunds in previous years. And thus, it is really a moral obligation of the current government to return these sums to businesses and individuals in the com- ing year,” he said in his keynote address at the 2019 Post Budget Debate organised by the Malaysian Economic Association.

To fund this repayment, he said, the money had to be sourced from Petroliam Nasional Bhd amounting to RM30bil as a one-off special dividend.

“This is for repayment of the debt that the new government has inherited,” Johan said.

“If you take out the tax refunds for the projected amounts this year and the next: it tells a very different story. You will see total expenditure then actually contracting from RM286.5bil to RM277.5bil. Under normal circumstances, a savings of RM9bil or only 3% of expenditure would be a relatively easy exercise, but truth be told, historically every year in the past, we have always had an increase in the operating expenditure,” he added.

He said the reduction in operating expenditure had been due to the cutbacks in the areas of supply and services.

“This is why the government needs to be quite strict to review its budget in order to achieve the said reduction. There has been quite a significant cut in supply and services, resulting in some of the government programmes needing to be trimmed down,” Johan said.

He reaffirmed what Lim had said that most if not all of the increase in the budget deficit this year is due to the additional expenditure that was incurred by the previous government.

“It relates to the additional expenditure which was committed by the previous government but it was budgeted for. Some of these were special payments to civil servants in January of about RM2bil which was not provided for or others such as infrastructure commitments like the takeover of the Eastern Dispersal Link for RM1.3bil, some rail projects amounting to RM1.4bil, payments under Prasarana of RM1bil,” Johan said.

“These are some expenditure which were committed, and by putting them into the budget, then this basically resulted in the higher deficit as opposed to doing it the other way round, then some of these things would be put into off-budget items,” he added.