As announced by the Prime Minister, this year’s budget tabling will take place on October 7 and will be much anticipated as this will likely be the pre-election budget which is usually people-friendly. Maybank Investment Bank expects Budget 2023 – to be “less expansionary”, with a budget deficit down to 5.0% of GDP.
The lower 2023 budget deficit to GDP mainly reflects two key factors on the expenditure side of the budget. First is the expiry of the COVID-19 Fund which accounts for around one-third of budget deficits in 2020-2022E. Second is the lower fuel subsidy, hence slower growth in operating expenditure the expected transition to “targeted” – from “blanket” – fuel subsidy MIB expectation of Budget 2023 will be forecasting lower average crude oil price of USD80-90/bbl next year vs USD100-120/bbl this year.
The investment bank also expects a third consecutive year of double-digit growth in gross development spending given the fiscal space from COVID-19 Fund expiry and implementation of “targeted” fuel subsidy. This is also in line with the outlook of peak GDE in 2023-2024, based on 12th Malaysia Plan’s MYR400b allocation. Maybank expects 2023 GDE to focus on digital infrastructure (namely 5G network capex); progress/completion of ongoing – and rollout of new – major physical infrastructure projects; bridge the inter-state gaps in socio-economic and infrastructure developments via a higher share of GDE allocations to less developed states; support human capital development to address labour market supply-demand mismatch and talent issues; an improve the essential public services like education and healthcare.
On taxes, Malaysia’s adopting of the 15% Global Tax on MNCs and thus the Qualified Domestic Minimum Top-Up Tax (QDMTT) where if an MNC’s profit is taxed below the 15% global tax rate, a top-up tax will be imposed. Major tax wildcards in Budget 2023 are GST comeback and the “Cukai Makmur” extension. No expectation of GST implementation in 2023 but
foresee Budget 2023 “messaging” on the need for GST in 2024 And sense is the market sees risk of “Cukai Makmur” extension into 2023 despite the Ministry of Finance stating it is a one-off tax measure in Budget 2022.
Budget 2023 will remain “SME-friendly” with potential measures such as raising the taxable income threshold for the 17% SMEs income tax rate from MYR600,000 to at least MYR1m; and more allocations for the various SME funds and soft loans for technology adoption; productivity and efficiency enhancements; integration into the global supply chain; food security; and sustainability/ESG transition. Sectors/industries we see potentially benefiting from – and being the focus of – Budget 2023 are consumer staples (e.g. recently announced civil service salary increment and special payment for 2023; expected enhancements to existing cash handout and financial assistance programmes), food, affordable housing, and tourism (e.g. extension of personal income tax relief for domestic tourism and entertainment duty exemption for admission fees to entertainment venues such as theme parks, stage performances, sports events and competitions in the Federal Territories).
There might be a specific Budget 2023 measure to address the Ringgit situation i.e. official directive for Government Linked Companies and Government-Linked Investment Companies to repatriate overseas profits and investment income, and “go slow” on their overseas direct and portfolio investments.
