THE government’s fiscal deficit is likely to meet the budgeted RM40.3 billion, or 2.8%, of gross domestic product (GDP), given the cumulative fiscal shortfall of RM32.9 billion, or 2.3%, of GDP for the January to August period this year.

UOB Global Economics and Markets Research, in its macro note on the 2019 Budget preview, said that the government was expected to stay the course of fiscal and debt consolidation.

“The size of the budget deficit will depend, to a large extent, on the sales and service tax (SST) revenues collected, size of goods and services tax input tax credits, income tax and real property gains tax refunds are repaid, asset monetisation, higher oil revenues and degree of cuts in operating expenditure,” it said in a statement today.

UOB also expected the government to trim allocation for both operating and development expenditures amid lower revenue collection, adding its base case fiscal deficit projection was 3.0% of GDP in 2019.

“This is premised on the real GDP growth of 4.8% in 2018-2019. Measures to restructure the government’s overall debt and pare down the size of contingent liabilities will be positive for the ringgit,” it said.

It also said that the introduction of zero-based budgeting across ministries and government could help yield savings of up to RM20 billion, or 9.0%, of total revenue.

UOB also said that the focus areas for Budget 2019 would likely be affordable housing, automotive, transportation, tourism, e-commerce, as well as renewable energy.

The government is unlikely to cut tax rates due to the RM1 trillion debt and liabilities as well as lower revenue collection from SST.

“Instead, the government will find new revenue sources, such as digital economy tax and soda tax, while no adjustments would be made on the corporate and individual tax rates,” it said.

In addition, cash aids and fuel subsidies were likely to be reviewed to make them more targeted.

On the Malaysia Incorporated concept, UOB said government-linked investment companies were expected to reduce their equity holdings while the government would dispose of some of its assets, especially 1Malaysia Development Bhd’s related projects, and corporatise some agencies.

The government is also likely to focus on the tourism sector over the next two years to sustain economic growth and the special tourism fund might be re-established, it said. – Bernama, October 3, 2018.