Published: Monday September 24, 2012 MYT 2:49:00 PM
Budget 2013 to keep deficit below 5% of GDP
KUALA LUMPUR: UOB Economic-Treasury Research expects the government to most likely cap the fiscal deficit below 5% of gross domestic product (GDP) when it unveils the Budget 2013 proposals this Friday.
According to its Budget outlook report issued on Monday, this would compare with around 4.6% of GDP estimated for 2012
"We estimate that it would come in at around 4.2% of GDP. Nonetheless, it would be a feat to achieve the country's medium-term deficit target of around 3% of GDP by 2015 given the slow progress in fiscal consolidation," it said.
UOB Research said concerns have been raised for several years as the government continued to run high fiscal deficits, mainly due to its inability to broaden its tax base and cut back its fuel subsidies.
"Given the projections, the government is expected to see its public debt hit its ceiling of 55% of GDP within the next five years from current 53%. The last time Malaysia breached the ceiling was in 2009 when public debt rose to 55.4% of GDP. That would continue to pose challenges for the government in the years to come," it pointed out.
UOB Research also said the uncertain global economic environment would likely keep the budget expansionary as the government boosts spending and investments to continue the strong growth momentum, which was seen in the first half.
On the expectations of the Budget, it said the key measures would be to address the higher costs of living and providing some relief to the lower-income group in addition to dealing with competitiveness issues.
The research house expected the government to implement initiatives to boost the education sector to tie in with the recently announced 12-year masterplan on education targeted to be implemented next year.
UOB Research expected the government to provide more cash handouts and possibly tax relief measures in Budget 2013 proposals. However, it did not expect further stringent measures on the property market in this budget. There were expectations of more help for first-time home buyers.
As for the highly unpopular goods and services tax (GST), the research house did not expect it to be implemented in the Budget 2013.
"This means further lowering of either the personal or corporate income tax rates will also be unlikely in view of the high fiscal deficits. We are expecting higher operating expenditure as a result of the increase in civil service pay and pension payments while subsidies spending will continue to take up a substantial portion of its expenditure," UOB Research said.