M’sia to scrap GST from 1 Jun and curtail expenditure while S’pore to up GST and borrow for mega projects

Malaysia’s new government announced yesterday (16 May) that it would abolish the Goods & Service Tax from 1 June next month. The move is likely to spur consumer spending but may put pressure on its fiscal position.

However, Zeti Akhthar Aziz, a senior adviser to the Malaysian government, earlier had said that Malaysia would be able to reduce the fiscal deficit by controlling expenditure in the absence of GST.

Disgruntled Malaysians have been blaming the GST for their rising living costs, since it was imposed in 2015 by the Najib’s government.

Bloomberg said that, on the plus side, the abolishment of GST would help spur consumer spending and ease inflation in an economy that’s already booming. Oxford Economics also opined that the new Malaysian government’s policies, which include scrapping GST, re-introducing fuel subsidies and raising minimum wages, will boost GDP by 0.2 to 0.4 percentage points.

“The GST was key to Malaysia during the worst period” for the budget when oil had bottomed at $37 a barrel, said Trinh Nguyen, a senior economist at Natixis Asia Ltd. With the tax being repealed, Nguyen said she’s “not particularly concerned,” and it “will be very positive for the consumer sector.”

Singapore to borrow money for its mega infrastructure projects

Meanwhile, at the second session of the 13th Parliament also yesterday, Singapore’s Finance Minister Heng Swee Keat said that new funding ideas for mega infrastructure projects are on the cards, “particularly through borrowing arrangements” by statutory boards and government-owned companies.

“We will leverage the strength of our financial position to optimise our borrowing, and invest sustainably in longer-term infrastructure that will position Singapore well for the future,” he said.

One of the mega projects to be financed through borrowings is the upcoming T5 Airport Terminal. It constitutes part of the mega Changi East project.

In fact, the Ministry of Transport (MOT) and the Changi Airport Group (CAG) had acknowledged that the significant scale and complexity of the Changi East project renders it impossible to depend entirely on borrowings to fund the project. This has led to the Singapore government started a new levy to be imposed on passengers, so as to help fund the T5 expansion.

T5, expected to cost “tens of billions of dollars”, is slated to start operations in 2030. A network of tunnels and systems will also be constructed to allow the transfer of passengers and baggage between the new terminal and the rest of the airport terminals.

Heng has already announced in Feb that statutory boards and Government-owned companies will be encouraged to borrow from financial institutions to build “critical” national infrastructure and the government would provide the neccessary guarantees for these loans. He named T5 as one of the examples.

The new “Airport Development Levy”, which would also help to fund T5, would start from 1 Jul. Passengers flying out from Changi Airport will have to pay a total of S$47.30 – or S$13.30 more – in departure charges.

The International Air Transport Association (IATA) has already criticised the Singapore government for imposing the additional levy. In response, the Singapore government said the “joint contribution model” — with money from the Government, the CAG and airport users – allows progressive payments for the development costs, and avoids large spikes in the charges which airport users have to pay.

GST to increase from 7 to 9%

Already, the Singapore government has signaled that it will increase the GST from the current 7 to 9% after 2020, about 2 years’ time, so as to help increase the government’s revenue. But it appears that it will not be enough to meet Singapore’s ” growing expenditure needs”.

“The MOF supports the Government’s policies and programmes through a sound fiscal system that plans for the future, and an effective and efficient Government that innovates and delivers value for money,” said Heng yesterday. “We will harness our fiscal resources prudently and responsibly, so as to advance the well-being of all Singaporeans.”

It’s not known how the government can “advance” the well-being of Singaporeans while continuing to increase GST to meet its expenditure needs. And as it is, it looks like the government will have to start borrowing money too, so as to meet those expenditures on mega infrastructure projects, as GST increase will not be enough.

Heng also said in Parliament yesterday that the Government will continue to be “good stewards” of the national reserves.