May 31, 2018 / 10:57 AM / a year ago

Malaysia vows to meet deficit target, plug $5 billion tax hole

FILE PHOTO: Malaysia's Finance Minister Lim Guan Eng speaks during a news conference in Putrajaya, Malaysia May 24, 2018. REUTERS/Lai Seng Sin

KUALA LUMPUR (Reuters) - Malaysia will be able to meet its budget deficit target for 2018 even though the scrapping of a goods and services tax will blow a $5 billion hole in the government’s wallet, the country’s finance minister said on Thursday.

Lim Guan Eng said that the 21 billion ringgit ($5.3 billion) in lost revenue from the tax due to be axed on Friday would be offset by rising oil-related revenues, spending cuts on non-essential projects, increased dividends from govt-linked firms and a new sales tax expected to be introduced in September.

Malaysia’s new government has said it has 1 trillion ringgit in debt and liabilities, blaming the ballooning figure on abuses by the previous administration led by scandal-plagued Najib Razak.

“We are mindful that Federal Government debt which has exceeded RM1 trillion, requires fiscal discipline,” Lim told a news conference.

Lim said the government’s projected fiscal deficit would increase slightly to 40.1 billion ringgit in 2018 from 39.8 billion ringgit, which would maintain the budget deficit at 2.8 percent of GDP.

He said the current account balance - government revenue after operating expenditure - will remain positive, and that there were no plans to revise economic growth forecasts for now.

When asked about a possible public listing of state petroleum firm Petronas [PETR.UL] as an option for raising funds, Lim said such a proposal “has not been put forward to the government”.

Lim said higher dividends from government-linked entities such as Petronas, sovereign wealth fund Khazanah Nasional Berhad[KHAZA.UL] and the central bank could deliver an extra 5 billion ringgit this year. That would be alongside 5.4 billion ringgit of extra tax revenue from oil companies in Malaysia, and 10 billion ringgit saved through reviews of high-priced projects.

A sales tax due to be introduced on Sept. 1 will add an additional 4 billion ringgit to the public purse this year, the finance ministry estimated.

Reporting by A.Ananthalakshmi; Writing by John Geddie; Editing by Jacqueline Wong

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