Subsidies for the financially well-off may end up getting cut at Budget 2024. The money may instead be going towards providing cash aif for the needy, prioritising support for low-income households amidst a sluggish global economy and increased fiscal strain.
According to Deputy Finance Minister Datuk Seri Ahmad Maslan, Malaysia’s expected growth for 2023 is expected to be moderate at 4 percent- 5 percent, a notable drop compared to 8.7 percent last year.
Electricity and petrol subsidy cuts
Prime Minister Anwar Ibrahim is expected to announce a smaller spending plan for 2024 when he tables Budget 2024 in parliament this Friday.
As reported by Reuters, the Prime Minister is also expected to announce some cuts of electricity and petrol subsidies, and announce other measures to alleviate the rising cost of living.
“With efforts to pull in investments, socioeconomic restructuring, and the need for fiscal resilience, we believe there is a strong likelihood the budget will focus on fiscal tightening with an emphasis on funds reprioritised to households and sectors most needy,” CGS-CIMB analysts said in a research note this month.
CGS-CIMB also predicts that Malaysia’s fiscal deficit will narrow to 4.3 percent of gross domestic product (GDP) from an estimated 5 percent this year, citing subsidy cuts as the catalyst.
Earlier in October, Economy Minister Rafizi Ramli had said that the government will announce in the 2024 budget a shift to targeted subsidies. This move is expected to save at least US$1 billion to US$2 billion a year. He also mentioned that cash aid could also be given out.
Currently, Malaysia has a number of blanket subsidies on certain goods such as petrol, cooking oil, and rice. Since coming into power in November 2022, Anwar has vowed to move to a targeted subsidy system that mainly aids the lower-income groups.
The cost of subsidies has risen in recent years due to rising commodity prices, putting a strain on the government’s finances. Malaysia expects to spend 81 billion ringgit ($17.14 billion) in subsidies this year alone.
Steps to implement capital gains and luxury taxes
Economists expect Anwar to announce steps to implement capital gains and luxury taxes first mooted in the previous budget to broaden the revenue base.
There have also been talks about the potential reintroduction of the Goods & Services Tax (GST) from late 2024 or early 2025. GST was first introduced in 2015 at a rate of 6 percent but was scrapped in favour of the sales and service tax (SST) in 2018. Currently, the sales tax sits at 5 percent to 10 percent while the service tax is 6 percent. Kenanga analysts expect the government may transition to GST at a lower rate of 4 percent.
“Since the government plans to reduce subsidies for higher-income individuals first before reintroducing GST, we reckon that this transition may only happen in the second half of 2024,” Kenanga said.
