KUALA LUMPUR: There is a strong inclination for fiscal prudence in Budget 2023, which was scheduled to be tabled on Oct 7, against improved domestic economic conditions and the need to rebuild fiscal resilience, CGS-CIMB Securities Sdn Bhd said.
However, the brokerage firm said the likely upcoming general election and the impending sense of a global slowdown could make a budget with a positive fiscal impulse.
“Against these dual objectives, we believe the government could target a fiscal deficit of 4.3% of gross domestic product (GDP) next year versus 5.5% this year,” it said in a research note today.
Meanwhile, it said the debt position is projected to remain stable with debt-to-GDP ratio being well within the statutory limit of 65%.
“Overall, the big ‘IF’ with the proposed budget is whether we will see any programmes carried out in full considering the pending general election, which will supposedly be held post the budget announcement.
“Major changes to the government post-election are the biggest downside risks to our projections,” it said.
On goods and services tax (GST), CGS-CIMB said public discussion gained traction this year as the government has indicated its openness to the idea.
It said although seen as a regressive tax as the negative impact is disproportionately larger for the lower income group, the government is in need of a more diversified source of revenue away from oil and gas, which accounted for almost a quarter of revenues over the past 10 years.
“When the shift from sales and services tax (SST) to GST occurred in 2015, extra collections amounted to roughly RM20 billion (9.1% share of revenue), which allowed the government to raise spending on social protection to mitigate the impact to the lower income group.
“Alternatively, there is an option to broaden the SST tax base to cover more items,” it said.
CGS-CIMB said the government had earlier indicated that the current SST arrangement only covered 38% of the Consumer Price Index basket of goods as compared to 60% by the GST.
It added that if inflation is a concern, the government could also consider adopting the GST at a more neutral rate of three to four per cent from six per cent earlier, allowing GST collection to be somewhat akin to the current SST and hopefully limit the impact on inflation. – Bernama
