Countercyclical, Supportive Fiscal Policy To Continue To Achieve Progress - Mof

By Sharifah Hunaini Syed Ismail

KUALA LUMPUR, Oct 13 (Bernama) -- The government will continue its countercyclical and supportive fiscal policy to propel the socio-economic agenda towards becoming a progressive and successful nation, said the Finance Ministry (MoF).

Concurrently, it said, advancing the fiscal policy framework through the enhancement of revenue mobilisation, improvement in spending efficiency and fostering good governance will further strengthen public finance resilience in line with the Madani Economy aspirations launched in July 2023.

"The pace of fiscal consolidation will be gradually accelerated to achieve the deficit target of three per cent of GDP in the medium term," said the ministry in its 2024 Fiscal Outlook and Federal Government Revenue Estimates report released today.

Overall, the fiscal deficit in the first eight months of 2023 improved to RM46.8 billion compared with RM51.9 billion in the corresponding period in 2022, attributed to better revenue collection coupled with rigorous expenditure management.

The government remains committed to pursuing a fiscal reform agenda and to ensure long-term fiscal sustainability in the post-pandemic era. It will also resume fiscal reform initiatives to strengthen its finances by broadening the revenue base, optimising expenditure management, reducing risk exposure and enhancing fiscal governance.

"The formulation of the Medium-Term Revenue Strategy reinforces the government's commitment to enhance revenue mobilisation and broaden the tax base to fulfill expenditure needs in order to achieve its socio-economic objectives," it said.

Meanwhile, the government will continue to review public expenditure to improve spending efficiency and outcomes, particularly on subsidies, emoluments, health, education as well as supplies and services as these five components constitute the bulk of total operating expenditure, it said.

Despite moderate economic growth due to external uncertainties and prolonged geopolitical tensions, the government's fiscal position is expected to remain strong in 2023.

Government revenue projection has been revised upward by four per cent, or RM11.7 billion, to RM303.2 billion – 16.4 per cent of GDP –  compared with the initial RM291.5 billion estimate. Tax revenue remains the main contributor.

Total expenditure has also been revised up by 2.8 per cent to RM397.1 billion, surpassing the initial RM386.1 billion estimate.

The operating expenditure (OE) is estimated to increase by 3.8 per cent, or RM11 billion, to register RM300.1 billion, mainly to finance additional subsidy requirements, measures under the Madani Economy framework and expenditure for supplies and services.

In contrast, the development expenditure (DE) is projected to remain at RM97 billion, or 5.2 per cent of GDP, for programmes and projects under the 12th Malaysia Plan, along with financial commitments including 1Malaysia Development Bhd's (1MDB) bond redemption.

 The anticipated favourable revenue collection provides room for the government to mobilise its resources to finance additional expenditures. Thus, the fiscal deficit is estimated to remain at five per cent of GDP as targeted in Budget 2023 while the primary balance, after excluding debt service charges, is expected to record a 2.5 per cent deficit of the GDP.

Meanwhile, the Federal government's revenue collection in 2024 is estimated to rise further to RM307.6 billion, or 15.6 per cent of GDP, driven by higher tax collection.

"Tax revenue continues to be the major contributor and is expected to grow by 6.4 per cent to RM243.6 billion, attributed to economic activities, higher company profitability and better employment conditions," it said.

In the meantime, non-tax revenue is projected to decrease to RM64 billion, mainly due to lower dividends from Petronas, reflecting a reduced dependency on petroleum-related revenue.

Total expenditure is projected to be lower at RM393.8 billion, or 19.9 per cent of GDP. This is particularly attributed to a lower financial commitment, as a result from the absence of 1MDB bond redemption.

The OE allocation is expected to record RM303.8 billion, or 15.4 per cent of GDP, while the DE allocation is projected at RM90 billion, or 4.5 per cent of GDP.

The government will also undertake a subsidy rationalisation programme, with savings to be partly channelled to enhance social safety net programmes.

Meanwhile, the 12th Malaysia Plan projects and programmes – the construction of highways and railways, flood mitigation, health facilities and educational institutions – will be accelerated to bolster economic activities.

Overall, in line with the anticipated higher revenue and lower expenditure, the fiscal deficit level is expected to reduce further to 4.3 per cent of GDP and remain on the consolidation path.

This, in turn will provide ample fiscal space to cushion against global uncertainties and reduce debt burden in the long term. Hence, the primary balance is estimated to record a lower deficit of 1.8 per cent of GDP.

-- BERNAMA