Here’s What Experts Think Should Be Included In The New Budget 2023
Instead of following through with the previous Budget already tabled by the former government, the new government led by Prime Minister Datuk Seri Anwar Ibrahim will be tabling a brand new Budget.
Recently he announced that the retabled budget address will take into account the current economic challenges. Among the issues he hinted at that will be addressed include the country’s competitiveness, digitisation, sustainable consumption and production of natural resources.
He told the monthly gathering at the Finance Ministry that the toughest part was to ensure there are good policies to attract investors while making it a priority to protect the lower income groups, Bernama reported.
So this raises the question, in what way has the Malaysian economy changed since the tabling of the previous budget? Is a new budget really necessary? Well, to answer these questions, we spoke to a couple of experts to find out what’s really going on.
A new administration will always look to shape government spending
The first expert we spoke to is Patrick Tay, the Deals Partner, Economics and Policy for PwC Malaysia.
He pointed out that the new government wants to table their own budget, as it is a way for them to prioritise policies that will deliver the results they promised.
“It is understandable. A new administration will always look to shape government spending to deliver on its promises and policy priorities,” said Patrick.
Patrick also added that it is a good chance for the government to address the shifting economic conditions that has affected Malaysia since the previous budget was announced.
Good opportunity to address the rising cost of living
One of the challenges that the government will need to address in their budget is the rising cost of living.
According to a report by Bank Negara Malaysia (BNM), Malaysia saw its core inflation rise to 4.2% in Q4 2022, which is a 0.5% rise from 3.7% in Q3 2022.
“It is also a good opportunity to address changes in the economic conditions affecting Malaysia since the previous budget was prepared in October 2022, specifically the rising cost of living impacting the rakyat.
“In particular, Bank Negara Malaysia (BNM) reported that core inflation increased to 4.2% in Q4 2022, from 3.7% in Q3 2022”, added Patrick.
Economic conditions have shifted between the two budgets
One question that will be playing in everyone’s mind will be how Malaysia’s economic climate has shifted in the time between the two budgets.
Will the new budget have different considerations compared to the previous budget?
This is the question that we posed to Patrick, and according to him there are slight differences between the economic climate that need to be considered.
“Economic conditions have evolved slightly differently from expectations underpinning the previous Budget. We have seen the International Monetary Fund (IMF) revise the global growth forecast for 2023, mainly due to China successfully reopening as well as stronger consumption and investment spending in the US,” said Patrick.
Patrick also added that our economy has shown signs of resilience, to the point that unlike earlier forecasts, BNM has also said that they do not expect Malaysia to go into a recession.
“BNM does not expect Malaysia to go into recession, as labour market conditions have improved, and domestic financial conditions have eased,” said Patrick.
So when it comes to his expectations on what the budget will entail, this is what Patrick has to say.
“I think the government will take the opportunity to strengthen the fiscal position through targeted spending reductions. Simultaneously, the government is expected to redirect spending to alleviate living-cost pressures on the B40 and the most vulnerable segments of society,” Patrick concluded.
Retain personal tax rates reduction and provide additional tax rebates
Although as Patrick said, the introduction of a new budget from the new government is understandable, it still raises the question, should anything be retained from the previous budget?
PwC Malaysia Tax Director, Michelle Chuo shared her insights into this point.
And Michele said that in her opinion, there are a few initiatives that should be retained from the previous budget.
“The 2% reduction in personal tax rates for the M40 group, with an income between RM50,001 to RM100,000, that was announced in the previous Budget 2023 is good news. The reduction will allow the M40 group to save up to RM1,000 in taxes,” said Michelle.
Michelle said that this is due to the fact that after taking into consideration the current economic conditions, the 2% reduction will help the M40 group to save in taxes.
Which is why Michelle added that she hoped that the government would consider an added increase in personal relief or provide an additional tax rebate.
“Taking into consideration the current economic conditions, apart from the 2% reduction in tax rate for the middle-income tax band, the government could also consider an increase in personal relief or provide an additional tax rebate for targeted segments within the B40 and M40 groups.
“The RM9,000 personal relief has been the same since YA 2010. The increase can help cushion the rising cost of living, especially given that food items in Malaysia have gone up by as much as 20%, according to the Malaysian Institute of Economic Research (MIER),” said Michelle.
Keep tax incentive for women returning to work, extend tax relief for medical expenses
Another incentive that Michelle would like to see retained is the tax incentive for women returning to work.
“The tax incentive for women returning to work, offering income tax exemptions for five years from 2023 to 2028, will help encourage more women to rejoin the workforce after a career break.
“This is a positive step towards addressing the issue of brain drain that occurs when women leave the workforce, often in their late twenties to mid-thirties, due to family obligations,” said Michelle.
And finally, Michelle also added that the extension of tax relief for medical expenses to cover dental treatments is a very good move, and should be retained.
“The extension of tax relief for medical expenses to cover dental treatments is a good move to promote wellbeing among Malaysians,”
“On the flip side, it may be too restrictive to limit the claim to RM1,000. The government could consider allowing taxpayers the flexibility to claim relief for both medical and dental expenses up to RM8,000,” said Michelle.
Positive environmental, social, and corporate governance should be rewarded
When asked about her personal wishlist for Budget 2023, here’s what Michelle has to say.
“It is time to start considering tax incentives to reward positive ESG practices, such as tax relief for the installation of solar panels and the purchase of energy-saving household equipment,”
“We can also look into extending the full import and excise duty exemptions for imported completely built-up electric vehicles (EVs). Announced in Budget 2022, these exemptions, which run from 1 January 2022 to 31 December 2023 have driven a surge in the deployment of public EV-charging infrastructure in the Klang Valley. This rapid growth is a clear indication of EV’s growing popularity among the public,” said Michelle.
And finally, Michelle also personally hoped that the RM1000 tax for domestic tourism could be extended.
“I am sure the Rakyat are looking forward to more “cuti-cuti Malaysia” trips,” concluded Michelle.