With the conclusion of the Malaysia’s six state elections in August 2023, there is an expectation that the recently stabilised administrative structure could lay the groundwork for a more assertive budget in 2024. We anticipate that the new government administration will take proactive steps to recalibrate certain subsidies as the nation transitions into an endemic phase. These measures are likely to be aimed at balancing the need for fiscal prudence with the objective of safeguarding the spending power of both the M40 and B40 groups, thereby preserving the integrity of the Malaysian economy.

Recap on Measures in Revised Budget 2023

a) Income tax cut.

b) One-off RM700 Aidilfitri aid for all civil servants under Grade 56 and RM350 one-off aid for retired civil servants.

c) Job creation via various measures including involvement of corporate in TVET program.

d) Alcohol and tobacco’s excise duty maintained.

e) Intensify enforcement to curb revenue leakage from smuggling of brewery and cigarettes.

f) New excise duty imposes on e-cigarettes.

g) Government supports the idea of Generational End Game (GEG) for tobacco goods.

h) New tax incentives for CAPEX on chicken rearing in closed house system and the application period extended for 3 years to 2025.

Expectation 1: Subsidy Rationalisation

The projected subsidy allocation for 2024 is anticipated to see a further reduction, reaching an estimated RM40 billion. It is worth noting that in 2023, the national subsidy amounted to RM58.6 billion, as per the revised Budget 2023. While the subsidy for 2023 marked a 13.1% reduction from the RM67.4 billion allocated in 2022, it remains substantially higher than pre-pandemic levels. Importantly, this reduction in subsidies is unlikely to have a substantial impact on affluent households as the expected increase in expenditure for the T20 group is relatively modest compared to their overall income.

Expectation 2: Cash Assistance Program

The government's cash assistance program is set to undergo a reduction of RM1 billion, reaching an estimated RM7 billion in 2024, reflecting the nation's progress beyond the pandemic phase. Additionally, eligibility criteria for these cash aids will be assessed through the implementation of a new PADU system, intended to act as a central data hub, aggregating information from over 270 government agencies. This new screening mechanism aims to ensure that the assistance primarily serves the low-income demographic, effectively mitigating inflationary pressures for this group.

Expectation 3: New Wage Structure

The government is expected to introduce a Progressive Wage Model (PWM) alongside the existing minimum wage policy. This move seeks to address income disparities and mitigate the impacts of the rising cost of living. Notably, the minimum wage policy was initially instituted in 2013, starting at RM900 in Peninsular Malaysia and RM800 in Sabah and Sarawak, before incrementally rising and standardised to RM1,500 as of May 2022 across the entire country. Furthermore, the market is speculating the possibility of another minimum wage increase to RM1,800 prior to the implementation of the PWM. In summary, the anticipated wage reform in 2024 is expected to boost the disposable income and spending power of low-income groups, thus benefitting key players in the retail industry.

Expectation 4: Tobacco and Brewery

In the tobacco and brewery sector, we do not foresee significant changes in sin taxes as such a move could indirectly fuel the growth of the black market for tobacco and brewery products. Instead, the government would continue to combat illicit trades to address the tax leakage issue.

Maintain Overweight

We believe that a potentially evolving landscape lies ahead as the government charts its fiscal course for 2024. Emerging trends encompass reductions in subsidies and cash assistance, a shift towards preciously targeted aid for low-income segments, and the possibility of implementing a Progressive Wage Model to address income disparities. All in, the Budget 2024 is poised to strike a balance between fiscal responsibility and the pursuit of inclusive economic growth, leading to positive prospects in consumer space. Maintain Overweight on the sector as we believe the retail and F&B players will be the major beneficiaries of growing disposable income and rising consumption.

Source: TA Research - 4 Oct 2023