Budget 2023: What to Expect
On 24th February, Malaysia’s prime minister, Datuk Seri Anwar Ibrahim unveiled the Madani Budget 2023, framed around the core values of Sustainability, Prosperity, Innovation, Respect, Trust and Compassion. A component of fiscal policy, the budget is presented at the beginning of every fiscal year that represents projections or provides an estimation on the government’s revenues and spendings. As its standard practice, the budget is disclosed along with its ministry allocations in the parliament, which would then be debated and scrutinised to come to a final consensus.
This year’s proposal in particular, represents the Government’s ambitious approach to a progressive reform in accelerating economic recovery and inclusive society, focused on measures to aid M40 and B40 income earners struggling with inflation and the increasing cost of living. The budget allocation is the country’s biggest ever, due to expectations of a 17% increase in government spending compared to the Budget 2022 allocation, standing at RM388.1 billion. Out of the total amount, operating expenditure is allocated a total of RM289.1 billion while the remaining RM99 billion is allocated for development expenditure. Although this year’s budget holds a large amount on paper, Budget 2022 had surpassed its estimation at RM395.2 billion while it was initially valued at RM332.1 billion.
Despite the large number, the budget is expansionary overall, with the government announcing a slew of measures to implement progressive taxes, lowering the cost of living amid high inflation amongst others. On the revenue side, the government is expected to generate an estimated RM292 billion while the fiscal deficit ratio is expected to narrow to 5% of the GDP, compared to the current ratio of 5.6% of GDP.
Measures That Stimulate the Economy/Economical Influence
In his budget speech, Datuk Seri Anwar Ibrahim highlighted three main goals to be achieved through the budget including having a comprehensive and sustainable economic drive, institutional and governance reforms and moderating inequality in the country. Although the coming year shows a positive light on reducing fiscal deficit, a slowdown in Malaysia’s economy is still anticipated when compared to the previous year due to the challenges posed by the highly uncertain economic environment post-pandemic. Nevertheless, the budget proposes several measures to soften the blow and in hopes of bringing the confidence of the economy to a stable level.
In tabling the budget, Anwar emphasised on the importance of green technology, digital economy and small and medium enterprises (SMEs) as a means of developing the services sector of the nation. The sector is expected to moderate at 5.3% growth in 2023, however a decline from the previous year record of 10.9% growth. Through the budget, it proposes to extend the period of application on Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) to the end of 2025, alongside tax allowance exemptions to motivate companies in adopting green technology. Start-ups under SMEs are facilitated by Bank Negara in providing RM1 billion soft loans and encouraging innovation, as well as RM1 billion to help SMEs implement low-carbon practices. Khazanah Nasional Berhad, the sovereign wealth fund of Malaysia is also committed to provide RM150 million to boost environmentally friendly projects in support of the carbon market and reforestation. Existing SMEs experiencing financial challenges and rising costs are continuously supported by the reduction of corporate income tax and various loan facilities, guarantees and grants to automate and digitalise operations.
In its international aspect, the Ministry of International Trade and Industry (MITI) had welcomed the allocation of RM1.585 billion, of which covers an administrative allocation of RM625 million and development allocation of RM960 million. The large allocation proves to be a statement in committing to the country’s development and strengthening Malaysia’s position as a destination of choice for investments and the gateway to the Asian region, with the sector expected to expand by 5.8%. Investments facilitated under MITI include industries in the technological sector in building a quality human capital and empower the investment environment.
Malaysia’s GDP growth for FY2022 was recorded at 8.7%, which highlights the significant decline in growth as opposed to the expected GDP growth of FY2023 at 4%. Nevertheless, the budget had proposed ambitious measures given the delicate and uncertain economic state that ensures stability and sustainability.
Redistributing Income and Reducing Inequality
Worsened by the consequences of the pandemic, the country has experienced a widening income inequality, rising poverty levels and regional inequalities. In 2021, a majority of households reported a massive decline in income, with 20% of households from the M40 income bracket being transferred to the lower income group. In addressing these issues, the government introduced a progressive taxation system consisting of the restructure of individual income tax. Individuals earning between RM35,000 to RM100,000 a year would experience a 2% reduction in tax while those earning above RM100,000 would experience the opposite, with an increase of 0.5% to 2%. Aside from that, the government is committed to study the impact and efficiency of introducing a Capital Gains Tax for the disposal of unlisted shares by companies by 2024.
As noted to be a ‘highly compassionate move,’ by Tan Sri Dr Tay Ah Lek, the CEO of Public Bank Berhad, the government will deposit RM500 into the accounts of Employees Provident Fund contributors aged between 40 and 54 with savings of less than RM10,000 in their accounts, to account back for those who has experienced financial burdens after withdrawing funds. Aside from immediate monetary assistance, issues like food security, financial scams and others would be addressed to reduce inequality.
Budget Influence on the Youth
Apart from experiencing a change in the structure of personal income tax whether it be an increase or decrease in disposable income, allocations given to the different ministers of the country would have a significant impact to its residents.
The Education Ministry received the biggest allocation of the budget, standing at RM52.6 billion, with the Higher Education Ministry receiving RM15.3 billion. The allocation shows the government’s prioritisation of the education sector, as Tengku Zafrul, the Education Ministry aims to implement schemes that aid children and their parents alike in early education financial assistance in which a total of RM450 million had been allocated to three million eligible students. A maintenance allocation had been provided to improve infrastructure conditions of schools to ensure a conducive learning environment for children. On the other hand, a big bulk of the allocation under the Higher Education Ministry would be invested in the digitalisation and effectiveness of mode of teaching in order to match skills of youth to the workforce.
Boosting the quality of life for youth doesn’t stop there, with the government focusing on Technical and Vocational Education and Training (TVET) to re-skill and up-skill in order to match suitable jobs for the future of youth employment. Anwar announced that 35,000 jobs at GLCs would be offered to youth, TVET graduates and armed forces veterans, along with an allocation of RM40 million to benefit over 30,000 people involved in the gig economy. Moreover, initiatives to reduce the burden of entrepreneurs and business owners in releasing those declared bankrupt whose debts are under RM50,000 from their status.
Madani Budget 2023 Timeline
Following the dissolution of Parliament on October 10th 2022, the previous Budget 2023 of RM372.3 billion prepared by Ismail Sabri Yaakob was not approved nor debated in the parliament. On 14th February, the newly-elected prime minister Anwar Ibrahim tabled and made his budget speech in the parliament in the presence of all the ministers and members of parliament. The following weeks consists of two stages namely policy and committee stage in which ministers and members of parliament alike would be allowed to voice their opinions, debate on certain parts of the budget and vote on the agreeability. The policy stage touches on the surface level of each minister’s allocation of the year’s budget, while the committee stage covers amendments of numbers and amounts of allocation. Although the budget would not necessarily face major changes before the finalisation date, it is still subject to changes during the parliamentary sittings, thus the budget is expected to be concluded on the last day of parliament, on 4th April 2023.
