The Unity Government led by Prime Minister Datuk Seri Anwar Ibrahim tabled the national budget on Feb 24 totalling RM388.1 billion, of which RM289.1 billion is allocated for operating expenditure and RM99 billion for developing expenditure including RM2 billion for contingency savings.
Anwar, who is also Finance Minister, said in line with the expanding fiscal policy, the allocation for development was increased to RM97 billion compared to RM71.6 billion last year. Budget 2023 is the biggest national budget in the nation’s history.
“The increase is to enable focus to be given to programmes to eradicate poverty, repair public infrastructure and rural facilities….with the reform in government procurement procedures, it will be ensured that this increased allocation is fully utilised for the benefit of the people,” he said in the course of tabling the Revised Budget 2023 in Parliament.
Many lauded the revised budget stating it sets a new vision for the future and aims to reset Malaysia as the country faces economic challenges; and Anwar presented a realistic picture of Malaysia’s economy, emphasising the need to restore fiscal discipline and address the country’s high national debt.
The revised Budget 2023 under the theme of “Developing Malaysia Madani,” reflects the principles of responsibility and having greater values to face imminent economic challenges in a globally uncertain environment. The revised budget has placed emphasis on three key significant areas, namely: promoting a comprehensive and sustainable economy, reformation of institutions and good governance, and upholding social justice.
Government Revenue Gap
In this revised budget, taxation takes center stage to act as a driving force behind these three key areas and ensure that the government is able to fund the projected expenditure of RM388.1 billion. This is especially so of the ambitious target to reduce the fiscal deficit in the medium term from the current level of 5.6% of Gross Domestic Product (GDP) in 2022 to 3.2% of GDP by the year 2025. As a result, taxpayers can expect a challenging compliance environment ahead as the government looks to fill the gaps in government revenue going forward.
Changes to the Tax System
The revised budget proposes structural changes to the tax system in Malaysia, including the introduction of a Luxury Goods Tax, a Capital Gains Tax, and an excise duty on electronic cigarettes and vape products. The top 20% of Malaysian households will also face increased tax rates for income over RM100,000 to fuel government expenditure, on the principle that wealth has to be equitable to all, and any access is taxed on the rich to give the poor, as practised by the fabled Robin Hood in medieval times.
Diversifying Revenue Stream
The changes proposed in the revised Budget 2023 for diversifying government revenue streams are viewed positively, as Malaysia needs to meet the challenges of the future. Tax incentives for food security, technology development, and sustainable industries, such as electrical vehicles and carbon capture, are introduced and extended, providing opportunities for businesses in the Malaysian market.
Although various parties have criticised the Prime Minister’s maiden budget, particularly in relation to the expected rise in the nation’s debt, some experts see the unity government’s move as necessary to protect the welfare of the people. Experts are of the view that the revised expansionary budget will ensure that the targeted groups benefit fully from the assistance rendered by the government.
Focus on cost of living
Universiti Malaysia Perlis Faculty of Business and Communications senior lecturer Associate Prof Dr Mohd Zukime Mat Junoh said although it is a deficit budget, the unity government led by Anwar is optimistic that Budget 2023 can effectively deal with the cost of living issue.
“I view Budget 2023 as an aggressive step by the government to improve the well-being of the people, especially in terms of helping them to cope with the cost of living. For this year, the government has allocated a substantial sum of RM64 billion for subsidies, aid and various other incentives to minimise the impact of rising costs,” he said, adding, even though this budget was not a complete solution to the cost of living issue, he, however, believed that the government is committed to addressing it through a slew of measures aimed at relieving the burden of the people, especially the vulnerable groups.
The proposed measures include food subsidies, a hike in energy subsidies and financial aid for students from low-income households in addition to the existing cash handouts.
Uncertainties in raising revenue
Some analysts homed in on a possibility that Malaysia faces uncertainties in raising revenue to fund the RM388.1 billion revised budget. Anwar said revenue for 2023 is forecasted to be RM291.5 billion, down from RM294.4 billion a year ago. “Nevertheless, this does not take into account the additional sources of revenue that will clearly raise this year’s total revenue.”
Malaysia University of Science and Technology Professor Geoffrey Williams said the government could probably afford the increased spending, but noted Malaysia is very heavily affected by what’s happening in the global economy and there are some “headwinds” on the international front. “So although (revenue) is slightly lower in terms of its overall projection, it very much depends on the strength of the economy. So from a revenue side, I think that it is affordable,” he said.
On economic growth (forecasted to expand 4.5 per cent in 2023 slowing from the 8.7 per cent growth in 2022), Prof Williams pointed out that actual revenue for 2022 turned out to be “very much higher” than predicted in the original budget that year.
Last month, the government announced that Malaysia’s trade surplus hit a record high of RM255.1 billion in 2022. This is the 25th consecutive year the country has recorded a trade surplus since 1998. A trade surplus occurs when the value of a country’s exports exceeds the costs of its imports.
