In 2020, the shortfall amounted to 6.2% of the gross domestic product (GDP), and it rose to 6.4% in 2021.

It dropped to 5% under the first iteration of Budget 2023 that was tabled last October. Even so, it was still 1.6% higher than it was in 2019, before the Covid-19 outbreak.

The last time Malaysia recorded a fiscal surplus was from 1993 to 1997, before the Asian Financial Crisis. Over the five-year period, the surplus was 0.2% to 2.4% of GDP.

Economist Rajah Rasiah noted that the fiscal deficit is way higher than the 3% ceiling recommended under the proposed Fiscal Responsibility Act (FRA).

“Indeed, the fiscal deficit has been widening over the last 30 years,” he told FMT Business.

The finance ministry said in March the national debt is expected to be fully settled in 2053 on the premise that no new loans are taken to finance the deficit and to refinance maturing debts from 2024 onwards.

As of end-2022, the debt stood at RM1.08 trillion or 60.4% of the GDP. When included with the government’s exposure to other liabilities, the total debt stood at RM1.45 trillion, or 80.9% of the GDP.

Under the revised 2023 budget, revenue was estimated to amount to RM291.5 billion.

Narrowing deficit a must

Rajah believes the government should prioritise reducing national debt in the upcoming Budget 2024.

“Reducing debt should be one of the targets of the government. The operating expenditure which, along with lock-ins such as pensions and salaries, already exceeds tax revenue,” he said.

“There is a need to prune down on unnecessary expenditure, and to seek more tax sources to generate revenue.”

Bank Muamalat chief economist Afzanizam Rashid agreed that what matters is the government’s credibility in controlling the debt size, especially on governance.

“In that respect, the tabling of the FRA would bolster confidence in the government in making sure their finances are transparent, well managed and with good governance,” Afzanizam told FMT Business.

On Sept 11, the finance ministry announced that its fiscal policy committee had agreed for the FRA to be tabled in this month’s parliamentary session.

The FRA, said the committee, would clarify the government’s responsibilities in formulating fiscal policies and managing public monies.

GST comeback?

To improve the nation’s fiscal standing, the economists have called for Putrajaya to consider reimplementing the goods and services tax (GST) as a measure to effectively raise revenue and reduce Malaysia’s fiscal deficit.

“The Malaysian economy has done well, having recorded an 8.7% GDP growth in 2022 and 5.6% growth in the first half of 2023, while recording an inflation rate of 2% in August 2023,” Rajah said. “It will be good to announce the introduction of GST this year, and implement it in 2025.”

With the GST, the government can better channel resources to assist the B60 households.

“The regressiveness of GST can be removed by returning the taxes paid by the B60 back to them through e-invoices into their accounts using tax identification numbers.

“That will amount to less than RM4 billion, while giving the government a revenue exceeding RM30 billion collected from the T40,” Rajah said.

Afzanizam agreed with Rajah’s view.

“There has been indication that the GST might make a comeback. Therefore, elaborating on this topic with a specific timeline would help the government to manage expectations among the general public,” he said.

“This may include mitigating factors such as more allocation on cash transfers should the GST go ‘live’.”

Afzanizam said regular engagement with businesses is needed in order to avoid any confusion if the government decides to go ahead with the GST.

“There must also be a roadshow on GST for the general public so that they would have better understanding and can appreciate the reason for policy changes and more importantly, how it can benefit them,” he said.

Malaysia first implemented the GST in 2015 under the Najib Razak administration. It was subsequently halted by Pakatan Harapan in 2018.

However, there have been calls by analysts and politicians to bring back the GST to improve Malaysia’s fiscal position.

Budget 2024 is scheduled to be tabled in the Dewan Rakyat on Friday.