SINGAPORE: Prime Minister Anwar Ibrahim said the government will work to gradually lower the nation’s massive debt and narrow the budget gap, but ruled out reinstating the goods and services tax (GST) for now, or raising taxes that could hurt the poor.
While he acknowledged the GST remains the most transparent and efficient taxation system, he said the government “isn’t in a hurry to reinstate the tax” that was abolished in 2018 by the Pakatan Harapan government.
“I have a huge issue of having to introduce taxation policies or new initiatives when it affects the plight of the low-income group,” Anwar told Bloomberg Television’s Haslinda Amin in an interview in Singapore today.
“We have reached the (debt) ceiling and we should gradually go down.”
Raising the debt ceiling
Malaysia raised the debt limit to 60% of gross domestic product (GDP) from 55% in 2020 in the early days of the pandemic, and lifted it further to 65% in 2021 to make room for additional borrowings to fund fiscal stimulus.
Malaysia’s actual debt is at 61% of GDP, and the law under which the ceiling was raised lapsed on Dec 31.
Earlier this month, Anwar warned that this year’s fiscal position would not be comfortable, with about RM1.5 trillion in total debt and liabilities and a budget deficit setting around 5.8% of GDP as of last year.
He said “we cannot be content” with these figures and added that maximum debt service is approaching unmanageable levels.
While Malaysia remains A-rated by credit agencies Moody’s Investors Service and S&P Global Ratings, a reduction in government debt ratio will be key to winning a higher credit score from Fitch Ratings Ltd, which is the only one of the three main rating companies to have a lower BBB+ rating on Malaysia.
Anwar, who doubles as the finance minister, is set to table the revised 2023 budget in Parliament on Feb 24 and has been preaching fiscal prudence as the country stares down still-elevated debt levels in the wake of a Covid-era spending drive.
Protecting the poor
A “reformist” who heads a multiracial coalition, he has made protecting low- and middle-income groups from rising prices the top priority of his administration.
He said Malaysia is fortunate that the revenue from taxes has increased slightly, along with petroleum products.
Malaysia, which runs Southeast Asia’s widest fiscal deficit after the Philippines, has seen its budget strained by the cost of keeping essentials at below-market prices.
Government subsidies were forecast to reach a record RM80 billion in 2022, with concessions on fuels and cooking gas alone projected to account for about half the amount.
In December, the government said it would raise electricity prices for multinational companies and heavy users, part of Anwar’s bid to channel subsidies and spending towards the needy.
Small- and medium-sized firms and those involved in agriculture and food production will not be affected by the increase.