Malaysia’s expanded Budget ahead of state polls to aid poor, tax wealthy and narrow deficit

Malaysian PM Anwar Ibrahim unveiled Budget 2023 in Parliament on Friday, his first since taking office. PHOTO: REUTERS

KUALA LUMPUR - Prime Minister Anwar Ibrahim on Friday unveiled an expanded RM388.1 billion (S$118 billion) government Budget for this year which focused on supporting Malaysia’s lower-income groups, taxing the wealthy and keeping the national debt in check.

The Pakatan Harapan chief, who is also Finance Minister, is taking advantage of higher government revenue to raise spending, after Malaysia’s economy performed better than expected last year with economic growth at 8.7 per cent.

Budget 2022 was valued at RM332.1 billion but actual spending, largely due to a record RM80 billion in subsidies resulting from soaring fuel costs, came in at RM395.2 billion.

Stripping out the subsidy element – expected to be capped at RM64 billion this year, thanks to lower oil prices – the government’s expenditure this year is set to exceed that of last year.

Some of the expenditure will be channelled towards the lower-income groups in the form of lower personal income taxes, tax incentives for small enterprises and RM8 billion in cash handouts to the poorest 60 per cent.

Datuk Seri Anwar justified the additional spending in the face of global economic uncertainties, warning that despite a strong recovery last year, Malaysia’s growth has been trending downwards.

On a quarter-on-quarter basis, growth was 3.8 per cent, 3.5 per cent, 1.9 per cent and minus 2.6 per cent across 2022.

“As income and wealth is concentrated among the upper classes and wealthy elite, it is appropriate that redistribution is focused on the poor and middle class,” said Mr Anwar.

Friday’s Budget was Mr Anwar’s first since taking office after the general election in November.

Although national polls have already taken place, Budget 2023 is still seen as an “election Budget” because six states are expected to head to the ballot box in July, with about half of Malaysia’s electorate casting their vote.

The result of this vote will have a huge impact on the stability of Mr Anwar’s administration, especially if its political partner Umno does not improve on its poor showing in November.

The so-called unity government was cobbled together after the election resulted in Malaysia’s first-ever hung Parliament.

So far, government finances appear to be in Mr Anwar’s favour.

The fiscal deficit was 5.6 per cent of gross domestic product last year, lower than the targeted 6 per cent – thanks to the 8.7 per cent economic growth which exceeded projections of 6.5 per cent to 7 per cent.

A larger economy will also boost government coffers, which means Mr Anwar can still aim to trim the deficit to 5 per cent this year despite his ambitious spending plan and GDP growth expected to moderate to 4.5 per cent this year.

This growth estimate is higher than World Bank and Fitch projections of 4 per cent.

Mr Anwar was optimistic that “efforts to implement reforms” and Budget 2023 measures would see Malaysia surpass his own 4.5 per cent target.

He also added that while revenue estimates of RM291.5 billion for 2023 are lower than the RM294.4 billion collected last year, “this is before taking into account additional sources that will be announced in coming weeks”.

The Premier did not offer more details on these measures but said in his speech that a tax on luxury goods as well as e-cigarettes and vaping would be introduced.

This is on top of a tax hike for 150,000 taxpayers who earn over RM100,000 a year.

He also committed to continue reducing the Budget deficit to 3.2 per cent in 2025, stressing at the start of his speech that his government had inherited debt which is expected to breach RM1.2 trillion this year, or 60 per cent of GDP.

Servicing the interest alone would require RM46 billion, or 16 per cent of revenue.

The Premier also focused on corruption and administrative leakages, revealing that RM10 billion in diesel subsidies was misappropriated last year.

Meanwhile, RM22 billion in flood mitigation and deals to empower bumiputera contractors handed out through direct negotiations were reopened for tender bids, with expected savings of RM3 billion.

“This is proof of the excesses... that must be stopped if we want the nation to leap forward,” he said.

Malaysia’s fiscal trajectory is closely watched by the market after two years of Covid-19 restrictions, when the government was forced to deepen borrowings to pay for welfare and economic stimulus packages.

Development expenditure will surge this year to RM99 billion – including a standard RM2 billion reserve for unforeseen circumstances classified under development for the first time – from RM71.6 billion in 2022.

The largest segment will be spent on improving transport infrastructure including for urban rail networks, roads and ports.

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