UPDATE 1-Malaysia's new government sets a larger budget, reducing budget targets

(Minister of Finance comments)

Joseph Sipalan and Rozanna Latiff

Kuala Lumppur, November 2 (Reuters) – Malaysia on Friday presented an expanded budget and set a budget deficit target by 2019, as the new government led by Mahathir Mohamad faced the challenges of slowing down the economy, falling revenue and the previous administration.

The Mahathir Government's first budget in May reached a stunning election victory, including non-strategic assets to reduce public spending, sell non-strategic assets, and the Petronas State Energy Company's $ 30 billion ($ 7.20 billion) dividend to boost revenue.

Analysts have widely predicted a reduction in public spending, especially after Mahathir announced in October that it would reduce development spending and blamed the previous administration of Najib Razak for having suffered more than 1 trillion of Ringgit debt in the country.

Revenue collection also succeeded after the new government dropped 6 percent of its consumption tax and re-introduced fuel grants at the beginning of the year.

The draft budget for 2019, according to Finance Minister Lim Guan Eng, is expected to increase to 261.8 billion for the following year, from 236.5 billion to 2018, largely due to the Petronas dividend.

Government spending was increased to $ 314.6 billion ($ 75.53 billion) in 2019, an increase of 8.3 percent from this year's budget revision budget of $ 290.4 billion, according to the report on budget outlook published by the budget.

The government's "fiscal consolidation path starting from 2019 is backed up by a tight budget, extra-budgetary items and tax rebates," the report said.

It rejected the previous target of 2.8 percent of GDP in this year's budget deficit by raising it to 3.7 percent.

"Over the next three years, the government will meet the fiscal consolidation target by 3.4% in 2019, by 3.0% in 2020 and by 2021 in 2.8%," Lim said in parliament.

He said that the government introduced fiscal responsibility in 2021 to avoid 'uncontrolled spending and big debt'.

To increase revenue, the government will use state assets, review the existing tax system and incentives for companies, said Lim. It also reviews several projects awarded by Najib Razak's previous administration.

The minister also said that the government has decided to provide some $ 37 billion tax refund, most of which is funded by the $ 30 billion dividend of Petronas State Energy Company.

According to the budget, the oil and gas companies pay regular annual dividends for 24 billion rings.

According to an economic report published on a Friday, Malaysia said it significantly reduced public spending, despite the slower growth of the economy. ($ 1 = 4,1640 ringgit) (Further Reports by Liz Lee and Emily Chow, Writing by A. Ananthalakshmi, Editing by Simon Cameron-Moore)