KUALA LUMPUR (Oct 11): Prime Minister Datuk Seri Anwar Ibrahim is set to unveil the national budget this Friday, which he has said will provide further clarity on the government’s proposed targeted subsidies, taxation and strategies to increase the government’s revenue.

Expectations are high for Budget 2024, given the government’s ambitious growth targets of 5-5.5% for 2023-2025 and its fiscal deficit projections 3.0-3.5% under the 12th Malaysia Plan mid-term review, according to UOB Malaysia’s senior economist Julia Goh.

“Even more so, given that the development expenditure ceiling was raised to indicate at least RM90 billion per year in 2023-2025. [So] the focus will be on the areas of allocation for the funds. We expect the government to present a pro-growth and green budget, with a narrower fiscal deficit target of 4.2% of GDP (versus estimated 4.9% for 2023),” she told The Edge.

While subsidy rationalisation is going to be the top focus, the upcoming budget is also seen as one that offers the government a good opportunity to undertake reforms, in view of the country’s fiscal constraints and the challenging global environment.

And it will likely be a record-sized budget, with the lowest fiscal deficit since 2019 and a higher development expenditure allocation, based on 12MP MTR figures and assuming no significant deviation in Budget 2023 numbers.

Here is a recap of what the government has said or hinted at so far about Budget 2024:

Targeted subsidies, more coordination of efforts to help the poor

Economy Minister Rafizi Ramli has said the government will unveil a ‘concrete move’ away from the blanket subsidy system to a targeted one, which could result in savings of about US$1 billion (RM4.73 billion) to US$2 billion a year, to reduce the nation’s fiscal deficit.

And the government is looking to implement this targeted subsidy programme as soon as the second quarter of 2024, following the electricity tariff adjustments made earlier this year that resulted in a more targeted provision of power subsidy to households, in particular low-voltage users, while subsidies to large businesses and high-voltage-use households were cut.

While attention on the rationalisation has so far been on fuel subsidies, Anwar has also hinted that the exercise may widen to other areas, to ensure subsidies only go to those who truly need them.

"We have to study it; if we want to continue with subsidies, there is no need to give to the 10% (high-income group). For example, hospital charges are low, even free in some cases, but we give (this benefit) to all. Is it wrong to impose higher payments on the richest group?” he was quoted as saying earlier this month during a visit to Ipoh.

Besides subsidy rationalisation, the government plans to coordinate all forms of assistance to the hardcore poor to ensure there is no overlapping of recipients, Anwar said last week, as the government needs to manage its funds more efficiently and responsibly so that every allocation achieves its intention to help the poor.

The measure will involve several institutions and aid programmes, among them Amanah Ikhtiar Malaysia (AIM), zakat institutions throughout the country, as well as People’s Income Initiative (IPR). “I want to ensure AIM, zakat institutions and IPR are coordinated so that we know the actual number of recipients and there is no overlap in people receiving assistance,” he was quoted as saying in news reports.

At the same time, Anwar has promised bigger and better programmes to alleviate hardship and pressure on people’s daily lives, and one of these programmes will see AIM — a private trust that serves as a microfinance institution (MFI) to provide financing to poor and low-income households in Malaysia — play a role in raising the living standards of the poor.

Salary adjustments for civil servants

The government has agreed to an upward adjustment of the salary scale of lecturers, professors and civil servants as a “temporary measure” to mitigate the spike in the prices of goods, until a comprehensive study on civil servants’ salary and pension scheme is completed next year.

“Perhaps this is where the rationalisation of subsidies would help the government to allow some savings which can be redirected towards other things that can improve the country’s productivity in the long run, including better pay scale for lecturers or professors. This can be quite critical to incentivise them to produce high quality research that can be beneficial to the relevant industries,” said Bank Muamalat Bhd’s head of economics, market analysis and social finance Dr Mohd Afzanizam Abdul Rashid.

In 2010, RM58.2 billion or 38.4% of the government's total opex of RM151.6 billion went towards the salaries and benefits of public sector workers. That number jumped to 52.3% or RM114.9 billion by 2021, and is expected to rise to RM115.2 billion in 2022 (40.5%) and RM119.8 billion in 2023 (44%), according to the Fiscal Outlook and Federal Government Revenue Estimates 2023.

Clarity on new taxes, GST to take a back seat

Anwar has spoken about widening the tax base and introducing the capital gains tax (CGT) next year, on which there are expected to be more details, on top of his government’s earlier announcement in Budget 2023 of the luxury goods tax that will be implemented this year.

Rafizi, in an interview with The Edge published early this month, said the CGT is “certainly for the transaction of unquoted shares”.

“Given that Permodalan Nasional Bhd and the Employees Provident Fund are the biggest players in our equity market, putting a CGT on our capital market is almost like money from the left pocket going into the right pocket. So, when you put CGT on quoted shares on Bursa, the ones who will be hit the most would be public funds anyway.

“The discussion so far is on unquoted shares, and some of the most opaque transactions and some of the biggest transactions are on unquoted shares. I agree in principle when it was discussed that we should focus on unquoted shares first. But I don’t know how much it will have an impact on the fiscal position. If anything, the discussions on CGT were more from the governance and moral perspective,” Rafizi said.

On the luxury goods tax, which tourism players have been worried would hit their industry hard, more clarity is anticipated since the government has made no announcement on the new tax since it was first announced in the previous budget.

As for the oft-discussed goods and services tax (GST), both Anwar and Rafizi have indicated that it is unlikely to make a comeback soon.

While Rafizi has said the reintroduction of GST has not been ruled out, he has also said the government is not in favour of the tax, given its "regressive impact on the economy", saying it could further hurt poor households, numbering in the millions, that are not in the taxable income bracket.

Anwar, meanwhile, has said the government should focus on reducing subsidies for the rich before considering the reintroduction of the GST.

“When do we implement it? It depends on the threshold. When people are living in abject poverty, you have to introduce progressive tax policies, but not a broad base policy that affects the very poor. So, you have to give it some time, but then do you do nothing? No. You have to broaden the tax base, for sure. But you have first to reduce subsidies to the rich," Anwar was quoted as saying last month.

Greater support for SMEs, M40 group

There will be initiatives that focus on assisting micro, small and medium scale entrepreneurs, according to Anwar.

“The previous national budget was a temporary one. I took over in November, we had meetings in December and in March we launched the Madani budget,” Anwar was reported to have said to a gathering of entrepreneurs in August, referring to the government’s Budget 2023.

“The second Madani budget is the best framework suited to the Madani economy and I will give more attention to the development of small and medium-scale entrepreneurs,” Anwar said.

Deputy Finance Minister II Steven Sim reiterated this stance last month, saying the government aims to support the middle class and SMEs to increase their business income and job opportunities. The government will also work on boosting domestic direct investment to address concerns from local entrepreneurs who felt overshadowed by foreign direct investments.

Sim also said the middle class group needs assistance, as 20% of the M40 group has fallen into the B40 category due to the Covid-19 pandemic. “They are the economy generators and workforce, and they are the ones who will spend in the local economy. We want to empower them,” he was reported as saying during a Budget 2024 roadshow in Ipoh.

Felda a priority

A month before heading into the state polls that took place on Aug 12, Anwar vowed to prioritise the Federal Land Development Authority (Felda) under Budget 2024, to look after the people of Felda and to uplift their livelihood.

In particular, the government will be taking proactive steps to resolve four issues of concern involving infrastructure in Felda settlements, namely street lights, rural health clinics, telecommunications and security checkpoints, according to Deputy Prime Minister Datuk Seri Ahmad Zahid Hamidi at the end of last month.

“We will soon see this when the prime minister tables Budget 2024, where among the priority projects will be to develop and upgrade rural health clinics in the Felda areas,” Ahmad Zahid was quoted as saying.

Progressive wage policy

Rafizi has said the government will deliver more details about the progressive wage policy that is aimed at uplifting workers’ low wages by upgrading their skills and productivity. The policy has been approved by the Cabinet and the system is expected to be implemented in April or May next year.

“The policy has been approved in principle as well as the approach and then we have to go through a series of processes including bringing down to all stakeholders and the level of coverage for specific groups. Thereafter, we will translate it into the financial commitment that the government has to make and we will go through that in the budget process,” he told reporters in August.

Under the policy, employers who raise their employees’ salaries will receive cash incentives from the government. The incentive is meant to encourage employers, especially SMEs, to participate in the policy. The incentive will be subject to an annual quota and will be on a first-come-first-served basis, according to Rafizi.

Refining state allocations to be ‘fair’ to Perak, Negeri Sembilan and Melaka

In June, Rafizi said Sabah and Sarawak, along with Kelantan, Terengganu and Perlis, have been given bigger development allocations under the national budget previously as it has always been the federal government’s policy to allocate bigger funds for states whose infrastructure development lags behind.

While Budget 2024 will continue to do so, he said the federal government plans to also put more focus on the overall development of the states in Malaysia in an effort to bridge the economic development gap between them.

“We have three categories actually... one that has been given priority (Sarawak, Sabah, Kelantan, Terengganu, Kedah and Perlis); the second is for states with growth that have their own economic development without much injection from the federal government (Penang, Selangor and the Federal Territory of Kuala Lumpur); third is for states in the middle (Perak, Johor, Negeri Sembilan and Melaka).

“This is also a change that we are refining because we also need to be fair to certain states such as Perak, Negeri Sembilan and Melaka,” he was quoted as saying.

Health, education ministries to continue having the biggest allocations

The Health Ministry (MOH) and the Education Ministry will continue to get the biggest allocations under Budget 2024, according to Anwar.

Among matters that will be focused on are the building of health clinics and measures to solve the problem of congestion in government hospitals throughout the country. "In the Madani Budget, health and education issues will continue to be given emphasis. Our main focus is healthcare facilities, including hospitals, he told the media early this month.

In Budget 2023, the government allocated RM55.2 billion for the Education Ministry, and RM36.3 billion for MOH.

Police housing

Anwar said the government will try to obtain additional allocation for the construction and repair of police quarters, as only 40% to 60% of the housing projects were habitable, while the rest are in unsafe conditions.

"Police housing... I don't have to ask whether their homes are in good condition or not because we already know. Some of them are not well-maintained. Many of them require repair and have not been well-maintained for years,” he said in August during a meet-and-greet session with personnel and families of the Ulu Kinta General Operations Force in Ipoh.

“Most importantly, we will provide immediate funding for basic repairs, then the others can be attended to,” he said.

A month before that, Anwar announced an allocation of more than RM200 million, with RM110 million each to repair and maintain Armed Forces housing, and another RM150 million for the maintenance of facilities of agencies under the Ministry of Home Affairs (MOHA), including the police force.

Under Budget 2023, over RM500 million was allocated for the maintenance of the Armed Forces’ family homes (Rumah Keluarga Angkatan Tentera) and the rehabilitation of residential quarters and institutions under MOHA.

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Budget 2024: Where we're at, and what to expect