‘Missing’ GST refunds: Just a matter of poor fiscal discipline?

The government may have spent the GST revenue, including the amount earmarked for refunds, in the course of its operations.

COMMENT

By TK Chua

I am trying to explain, based on my experience and observations, why the RM18 billion that was supposed to be in the “GST refund trust account” has gone missing.

The money may not have been stolen in the sense that it was siphoned off and used by some individuals in the government. It may have gone missing as part of Malaysia’s ongoing problem of poor fiscal discipline. Let me explain.

Malaysia has incurred consecutive fiscal deficits since 1997, regardless of the state of the economy. For more than 20 years, expenditure has been more than revenue. For more than 20 years, the government has been pretending to show that fiscal deficit as a percentage of gross domestic product was trending downwards.

With insufficient revenue to cover expenditure, naturally the government would spend whatever it has at its disposal, including the GST collection and what was earmarked for refunds which is technically not part of government revenue.

Why this is happening is simple: Malaysia has never been known for its fiscal discipline.

Each year, we formulate budgets for show. No serious attempts are made to adhere to the forecasted revenue or estimated expenditure. The shortfall was “effortlessly” covered by supplementary budgets, sometimes sought more than twice within the same fiscal year.

I believe the government may have spent the GST revenue, including the amount earmarked for refunds, in the course of its operations. The government may not have been bothered about refunds for two possible reasons: firstly, it can always find reasons to delay the refunds, and secondly, when push comes to shove, it can ask for supplementary budgets to meet the requested refunds.

In my opinion, the RM18 billion is long gone, spent as part of operating or development expenditure.

Ultimately, government is procedural. We must have the discipline to adhere to procedures to ensure good governance and accountability.

If national budgets are not followed, problems will start to show.

We announce our fiscal deficit target with lots of pomp on budget day, but we have no intention of adhering to it. We spend first on projects or programmes that are not in the budget. We cover shortfalls and additional spending by supplementary budgets financed through additional borrowing. There is no cap on government borrowing for each fiscal year, meaning the government can borrow any amount it wants.

The RM18 billion in GST refunds that went missing is just part of Malaysia’s problem with fiscal discipline. It could have gone unnoticed if the federal government had not changed hands on May 9. The old government could have continued delaying the refunds or asked for additional allocations financed through more borrowing or taxes.

TK Chua is an FMT reader.