Prime Minister Datuk Seri Anwar Ibrahim will table Budget 2024 under the theme “Madani Economy: Empowering the People” today (Oct 13) under efforts to pull in investments, socioeconomic restructuring, and the need for fiscal resilience.
Among salient expectorations include:
Tackling the Cost-of-Living Conundrum
The issue of the rising cost of living has remained persistent, directly impacting the financial well-being of Malaysia’s workforce. Malaysia’s Consumer Price Index (CPI) was recorded at 2% in July 2023 by the Department of Statistics and one of the proposed solutions to address income disparities is through the implementation of progressive wages.
While commendable, progressive wages must be supplemented with measures to mitigate income erosion due to inflation. The upcoming budget should address this conundrum through targeted subsidies, tax incentives, or other mechanisms that alleviate the cost-of living burden on employees.
Rising cost of living and economic concerns are among some the top issues Malaysians hopes would be addressed in Budget 2024.
Subsidies For Fiscal Strength
Malaysia is expected to make subsidy cuts for the well-off and provide cash aid for the needy as part of its budget plan for 2024, prioritising support for low-income households amidst a global slowdown and fiscal strains. Public finances are tight for the export-driven Southeast Asian economy, whose growth is expected to moderate to 4%-5% this year, from 8.7% last year.
Prime Minister Anwar Ibrahim is expected to announce a smaller spending plan for 2024 when he tables the budget in parliament on Friday, Reuters cited economists saying. He is also expected to announce cuts to electricity and petrol subsidies, and announce other measures to alleviate the rising cost of living.
The Consumers’ Association of Penang (CAP) supports the proposal of a “sugar tax” to fight the diabetes epidemic in Malaysia but the Government should allocate subsidies for the poor to curb diabetic cases in Malaysia.
Enhancing The Digital Economy
Recognising the significant contribution of the digital economy sector to the country’s gross domestic product (GDP), Communications and Digital Minister Fahmi Fadzil said the digital economy sector had contributed more than 23 per cent to GDP, and the figure is projected to rise to 25.5 per cent by 2025.
He also said that the Communications and Digital Ministry and its agencies have successfully attracted investments worth RM28.4 billion in the first half of 2023, which is a 279 per cent increase compared to the same period last year.
Fahmi emphasised that the government places great importance on the supply side, which is local digital talents, which was seen as crucial.
After the unity government took power, Datuk Seri Anwar Ibrahim tabled a refreshed budget themed “Madani Budget” in February 29th this year, where the government set an allocation of RM388.1 billion, with RM289.1 billion for operating expenditure and RM99 billion for development expenditure.
Lowering Deficit
The tabling of Budget 2024 on Oct 13 will be aligned to the medium-to-long-term policies of the —12th Malaysia Plan Mid-Term Review (12MP MTR, 2023-2025); New Industrial Master Plan (NIMP 2030); MADANI Economy (2023-2033); National Energy Transition Roadmap (NETR, 2023-2050).
Maybank Investment Bank (Maybank IB) Asean Macro X note cited the bank expects the 2024 budget deficit/GDP ratio of 4.0%-4.3% (1H 2023: 4.5%; 2023E: 5.0%; 2020-2022 average: 6.1%), to be in line with fiscal consolidation targets of 12MP MTR (2025E: 3.1%) and MADANI Economy (<3% within next 10 years).
As Government tiptoes on GST, tax measures will lean towards taxing “income, profits and wealth” e.g. capital gains tax (CGT) on unlisted shares; luxury goods tax proposed in re-tabled Budget 2023 (24 Feb 2023); adoption of the 15% Minimum Global Corporate Income Tax Rate on MNCs.
Debt Sustainability
Budget 2024 is likely to feature a delicate balancing act by the government between continued economic support while ensuring debt sustainability, said RHB Research, adding, the budget is likely to remain mildly expansionary in nature, with substantial support towards selected priority sectors and continued assistance to ease the financial burdens of the targeted groups.
RHB expects some form of fiscal consolidation measures to be announced, which include the enhancement of revenue as well as the rationalisation of expenditure allocation. The fiscal resources would be channelled in a more targeted approach and allocated in priority areas and revenue enhancement, RHB expects no major changes in consumer tax for the year.
More EV Incentives
As Malaysia is targeting to be a net-zero GHG emission country by 2050, RHB investment believes the focus for the auto sector will be on propelling EV uptake in Malaysia, where creating a wider EV ecosystem as well as incentives for EV adoption will take centre stage. This could include incentives for installing EV charging infrastructure, locally assembled EV incentives, and EV road tax reform.
Malaysia intends to have 10,000 charging stations in the country by 2025. However, as of late July, the charging station count is only close to 1,100. On top of that, the adoption of EVs is outpacing the country’s deployment of charging infrastructure, according to Gentari deputy CEO Shah Yang Razalli. Given the huge disparity between the current charging station count from its target, we anticipate the Government will be more aggressive in ensuring the 10,000 milestone is achieved.
Uplifting Malaysian SME’s
The Ministry of Finance will focus more on micro, small and medium enterprises (MSMEs) in Budget 2024 to empower the sector, so that it can compete in the new economy to drive the country’s economic growth.
Deputy Finance Minister II Steven Sim Chee Keong said Budget 2024, which will be tabled on Oct 13, will be based on the Madani framework, by focusing on the value of development and employment from the MSME sector.
“This is because MSME is one of the main drivers of the economy, with its growth rate and job opportunities. Apart from that, the sector is the most affected, especially during the Covid-19 pandemic.
Targeted Subsidy Reform
Based on reports quoting Economy Minister Rafizi Ramli, the Government is expecting to implement its targeted subsidy programme by early 2024. This timeframe is based on the scheduled November launch of the PADU socio-economic database that will incorporate household net disposable income metrics as a benchmarking measure to ensure that targeted subsidies are accurately distributed. It has been speculated that the Government’s plans to introduce a targeted subsidy policy will begin with diesel and electricity, and later be expanded to RON95 petrol. The concerns over subsidy reform are mainly centred on the impact of inflation and consumer spending patterns.
Capital Gains Tax (CGT)
During the tabling of the Revised Budget 2023, Prime Minister and Finance Minister Dato’ Seri Anwar Ibrahim announced the introduction of CGT on the disposal of unlisted shares by companies beginning in 2024. Malaysia does not have a CGT regime except for gains arising from the disposal of real property, which may be subject to Real Property Gains Tax or RPGT. Media reports quoting Finance Minister and Prime Minister Dato’ Seri Anwar emphasised that CGT would not be introduced on listed shares and that the disposal of unlisted shares for an approved IPO would not be subject to any new CGT.
GST
The earlier iteration of GST was implemented at a 6% rate in Apr 2015 before being removed in June 2018. There was widespread dissatisfaction – especially from smaller businesses – on the way GST was managed and, in particular, the refunds of input taxes due, which reportedly saw inordinate delays. This led to the politicisation of GST in the run-up to GE14 and the initiative to abolish GST being the first promise in the Pakatan Harapan.
MSME 5G Adoption Grant
The Ministry of Communications and Digital (KKD) has proposed for the government to introduce a special grant under Budget 2024 to facilitate 5G adoption among the micro, small and medium enterprise (MSME) sector.
5G will provide numerous advantages to MSMEs, so I hope we will obtain the special grant to increase 5G usage among them. Malaysia is on track to achieve 80 per cent 5G network coverage in populated areas by year-end, up from the current coverage of 68.8 per cent currently before transitioning to a dual network model.
The minister noted that the 5G adoption rate remained low at 4.2 per cent, therefore, more efforts must be made to realise the full 5G potential and we want to send a message to the industry that through this grant, the government understands the challenges MSMEs face in adopting 5G technology, Fahmi said.
Vibrant And Resilient Property Sector
Amidst the current inflationary challenges, the cost of essential items, including housing, has increased. To ease the financial strain on the public, especially for those aspiring to become first-time homeowners, there are hopes that the government explore additional measures like the Home Ownership Campaign (HOC) would stimulate demand, promote homeownership, and expand choices and affordability for prospective buyers.
Other incentives expected are the adoption of Industrialised Building System (IBS) precast system, strengthening environmental incentives for developers, lower compliance costs, promoting urban growth through infrastructure development.
Sustainable urban growth is also a key goal for many governments worldwide. Infrastructure development is a cornerstone of this objective, as it directly impacts the quality of life for urban residents and the long-term viability of cities.
