The new government is resetting “its fiscal consolidation path starting from 2019 to account for narrow revenue base, additional provision for off-budget items and tax refunds,” it said in a fiscal outlook report released on Friday alongside the presentation of next year’s budget.

Malaysia has budgeted RM314.6 billion for government expenditure in 2019, up 8.3% from this year’s revised budget of RM290.4 billion, according to the report.

Total revenue is projected to rise to RM261.8 billion next year, up from RM236.5 billion from 2018.

The government said it has decided to settle outstanding tax refunds of around RM37 billion, much of which will be funded by a one-off special dividend of RM30 billion from state energy firm Petronas.

The oil and gas company will also pay a regular annual dividend of RM24 billion, according to the report.

The fiscal deficit, which is closely tracked by ratings firms, is expected to hit 3.4% of gross domestic product in 2019. The deficit will come in at 3.7% for this year, higher than an earlier forecast of 2.8%, the government said.

It is undertaking a more rigorous expenditure optimisation exercise, the report said, adding that a tax reform committee has been set up to review tax incentives and explore new sources of revenue.

Friday’s budget announcement is the first by Mahathir’s government since Malaysians ended former leader Najib Razak’s near decade-long rule at a general election in May.

Analysts had widely predicted cuts to public spending, especially after Mahathir in October announced plans to reduce development spending and blamed Najib’s administration for saddling the country with debt of more than RM1 trillion.

Revenue collection had also taken a hit after the new government scrapped a 6% consumption tax and reintroduced fuel subsidies earlier this year.

In an economic report released on Friday, Malaysia said it will cut public spending sharply despite foreseeing the economy growing more slowly.