The government remains committed to subsidy rationalisation, whereby, subsidies and social assistance is expected to decline 9.6 percent to RM24.6 billion this year, compared with RM27.3 billion in 2015, while contributing 11.9 percent to total operating expenditure.

The government, will however, continue to subsidise essential services such as education, health and public transportation, said the Ministry of Finance in the 2016/2017 Economic Report released in conjunction with the tabling of Budget 2017 by Prime Minister Najib Abdul Razak, who is also the Finance Minister, today.

The federal government expenditure in 2016 is estimated to decline 2.2 percent to RM252.1 billion in this year from RM257.8 billion in 2015, with 82.2 percent provided for operating expenditure, while 17.8 percent is for development expenditure.

Government expenditure will continue to focus on programmes and projects with a high multiplier effect on the economy, amid a challenging environment, while ensuring the well being of the people.

The ministry said operating expenditure is expected to decline 4.5 percent to RM207.1 billion this year on measures to optimise and rationalise supplies and services, grants and subsidies as well as purchase of assets.

A sum of RM260 billion was allocated for development expenditure (DE) under the Eleventh Malaysia Plan, with the first rolling plan (2016-2017) outlining 4,500 projects and programmes, emphasising economic and social sectors.

Of this, 70 percent involves physical projects and the rest includes funds and grants. The government has allocated RM45 billion for DE this year which marks the first year of the rolling plan.

In terms of sectoral allocation, the economic sector accounts for the largest allocation at 61.4 percent followed by social (24 percent), security (11.2 percent) and general administration (3.4 percent).

Meanwhile, the federal government revenue collection this year is also expected to decline three per cent to RM212.6 billion, mainly due to lower collection of petroleum–related revenue by 34.4 percent following lower crude oil prices, the ministry said.

It said tax revenue remains the main source of federal government revenue this year, accounting for 78.6 percent of total revenue, whereby direct tax is contributing 52 percent to total revenue, a reduction by 1.1 percent to RM110.5 billion this year.

Indirect tax is forecast to increase 5.5 per cent to RM56.6 billion, mainly contributed by the collection of Goods and Services Tax.

Given the current economic challenges including lower global crude oil prices, the government will leverage existing resources and continue to undertake fiscal reform, hence, the target remains at 3.1 percent of Gross Domestic Product in 2016, from 3.2 per cent in 2015.

- Bernama