Malaysia will not have a balanced budget in 2006 but the government will gradually reduce the deficit, Prime Minister Abdullah Badawi said today at a briefing on Budget 2005 which he had tabled in Parliament last Friday.

"We are not obsessed with that (a balanced budget). I can certainly provide a guarantee and assurance that our deficit will be reduced progressively and gradually," he told a press conference.

He also said the private sector has responded positively to this strategy.

The budget deficit, the eighth in a row, is expected to be reduced to 3.8 percent next year. In 2002, the gross domestic product was 5.6 percent, but fell to 5.3 percent in 2003 and 4.5 percent this year.

Malaysiakini was initially told to leave the room before the press conference began at the Finance Ministry but was allowed to remain after negotiation with the premier's press secretary who had issued the instruction.

Petrol price hike?

Abdullah also hinted at the possibility of an increase in the retail price of petrol, without confirming if this would be the case.

"What I can say is that we are monitoring the impact we might have to face if the price of petrol is increased ... We will take the necessary steps ... the question is when. If we think it's time for us to increase the price, then we will do it."

However, he said, the government would take the consideration how any such increase will affect citizens.

"We will consider whether it will burden the rakyat, but they must also understand the problem. If subsidies are increased, it would be a burden to the government too."

He disclosed that the government has foregone RM10.7 billion annually in terms of revenue channelled to fuel subsidies.

"We have to forego RM6.8 billion in taxes and an additional RM3.9 billion in subsidies," he explained, adding that it is not healthy for the government to spend more on subsidies.

"If the price of the petrol continues to go up, we have to review and take some action, and see the consequences on the economy and businesses," he said, noting that petrol prices in Malaysia are low compared to that in other countries in the region.

Tax review panel

Abdullah also said the government would set up a eight-member Taxation System Review Panel to develop a new tax system, with Kamariah Hussain as its head.

The panel will comprise three members from the public sector and five from the private sector. It will formulate the details of the goods and services tax (GST) proposed in the budget speech, for implementation in 2007.

Kamariah, an under-secretary at the Finance Ministry's tax division, will serve a two-year contract in her new appointment.

Approached after the press conference for details, Kamariah said she had only been told this morning about her appointment and that she would need time to establish the panel.