The discrepancy of RM8 billion between the Treasury's Economic Report 2007/2008 and Prime Minister Abdullah Ahmad Badawi's budget speech on development spending is not something out of the ordinary.

According to a senior analyst with the Malaysian Institute of Economic Research (MIER), the higher figure in the Budget speech is meant to accommodate 'unforseen circumstances.'

"Every year, the differential between one and the other allows the government room to act - on a contingency basis - in the event either of a budget overrun or an economic slowdown," added the analyst, who declined to be named.

In his Budget 2008 speech, Abdullah cited an allocation of RM48.1 billion for development spending, while the Treasury report gave a figure of RM40 billion.

Singapore's Business Times noted that the latter figure is 2.1 percent lower than the figure in 2007 and indicates a slightly contracting budget.

With development spending of RM40 billion, the federal budget deficit will likely shrink from 3.3 percent of GDP in 2006 to 3.2 percent in 2007, and 3.1 percent in 2008.

However, based on the development figure cited by Abdullah - which is 15 percent higher than in the previous year - the budget allocation for development spending could result in a higher budget deficit than expected.

Asked if there should be concern over the likelihood that eight years of budget consolidation will be reversed, the analyst said this depended on what the actual GDP turns out to be for 2007-2008.

Even if budget consolidation does not continue according to previous rates and there is a slowing down of that consolidation, the budget deficit may still decrease, he said.

'Worrying trend'

"MIER is not overly concerned about this trend at the moment. Malaysia's deficit as a percentage of its GDP compares well with Hong Kong and Singapore. We're doing better than other countries such as Turkey and Argentina," he added.

Another senior analyst, who also spoke on condition of anonymity, however disagreed and said Malaysia's budget deficit should be a subject of grave concern for economists and Malaysians.

"We're going to look closely at the track record of the handling of the budget deficit over the past nine years as well as the implications of that handling," said the analyst who works for a government-linked think-tank.

He also said the cut in corporate taxes, the delay in implementing the Goods and Services Tax (GST) to 2009, and the many other ' goodies ' announced will be at a cost to taxpayers.

"The cut in corporate taxes, the increase of scholarships for higher education, who's going to pay for this? Ultimately, it will be the taxpayers in the from of an increasing budget deficit," he added.

He also said Malaysia's budget deficit relative to its GDP should not be compared with that of Singapore and Hong Kong as the latter economies enjoy far greater revenues.

"For this same reason, Singapore and Hong Kong can afford to have low corporate taxes, not Malaysia," he added.

M'sia can't afford such deficit

He also noted that Malaysia's GDP has not been doing as well as before the 1997 Asian financial crisis.

"I think the (deficit) trend is really worrying. There is no reason for a country like Malaysia to have such a budget deficit," he said.

Due to the deficit, Malaysia's sovereign credit ratings - where better ratings allow a country to borrow more cheaply abroad - are unlikely to be raised anytime soon.

Malaysia tried to get its credit ratings lifted this year at meetings with Moody's and Standard and Poor's in New York and Japan but neither agency agreed.

Both expressed satisfaction at the general tone of the economy but reservations over government finances.