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KUALA LUMPUR: The government has undertaken the zero-based budgeting approach in formulating 2019 Budget to improve spending efficiency, according to Ministry of Finance's Fiscal Outlook and Federal Government Revenue Estimates 2019.

The government has also decided to settle all the outstanding tax refunds estimated at RM37 billion of which RM18 billion dues from income taxes while RM19 billion from the Goods and Services Tax (GST).

To fulfil tax refunds obligation, the government said in the report it was expected to receive a one-off special dividend from Petroliam Nasional Bhd amounting to RM30 billion, with the balance will be set-off by expenditure savings.

It said total revenue excluding Petronas special dividend is expected to decline by RM4.6 billion to RM231.8 billion mainly due to lower interest and investment income, despite higher tax collection.

In contrast, operating expenditure (OE) excluding tax refunds is estimated to decrease RM12.6 billion to RM222.9 billion in line with the new budgeting approach under zero-based budgeting, it added.

"This involves savings from non-essential expenditure; postponing programmes and projects with less priority and urgency; improving the cost efficiency of existing programmes and projects, which include scaling down of scopes; and subsidies rationalisations towards a more targeted mechanism," the report said.

The government had undertaken reclassification exercise from OE to development expenditure (DE) for the development related item to reflect a more accurate reporting, it added.

"DE is forecast to remain around RM55 billion. Hence, taking into accounts all the measures, the net savings is estimated at RM8.2 billion."

After taking into account RM7 billion to partially finance the refunds, the government said the fiscal deficit was expected to reduce to RM52.1 billion or 3.4 per cent of GDP, reflecting efforts to regain fiscal consolidation momentum during the adjustment period.

It said fiscal consolidation will resume in 2019 onwards with the outstanding issues including outstanding tax refund and off-budget commitment that is expected to be settled.

According to the report, non-petroleum revenue for government is expected to remain as the largest revenue source representing 76 per cent of total revenue while petroleum-related revenue contributes the remaining 24 per cent.

With the modest assumption of oil price ranging between US$60-US$70 per barrel, total revenue during the medium-term fiscal framework 2019-2021 (MTFF) period is prudently estimated at RM767.9 billion, it added.

"Firm commitments to set an enveloped expenditure for the three-year framework will enhance the government’s capacity to manage expenditure and implement reforms.

"The total indicative ceiling for operating expenditure will stand at RM754.9 billion for 2019 2021 while the allocation for development expenditure is projected at RM164.7 billion," it said.

The ceiling indication under the MTFF will give guidance for each ministry to achieve an optimal level of spending towards the consolidation path, it added.

The government has started to undertake responsible and progressive fiscal reform initiatives in an orderly and transparent manner, it said.

"Among the initiatives that will be explored is a review on related fiscal legislation and enhancing fiscal institutions and governance, including fiscal risk framework.

"In return, with the enhanced transparency and accountability, the nation’s competitiveness and investors’ confidence will improve, thus supporting productive investments and economic growth," it said.

The government said it will accelerate its consolidation pace and is expected to further reduce its fiscal deficit level in the medium term.

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