Budget 2023: A post-election budget for the people?

KUALA LUMPUR: In the lead up to the annual federal budget, Prime Minister Datuk Seri Anwar Ibrahim repeatedly pledged to spur economic growth while protecting the people’s welfare.

Benedict Weerasena, Research Director of Bait Al Amanah acknowledged that the re-tabled Budget 2023 was more well-balanced in terms of responding to the people’s needs while prioritising reforms and fiscal responsibility.

Examples of this included plans to table the Government Procurement Act to improve transparency and amend the Whistleblower Protection Act.

However, he warned that the government’s projections for the nation’s gross domestic product (GDP) to expand 4.5 per cent, higher than that of the World Bank and Fitch Solutions’ prediction of 4 per cent, may be too optimistic.

“Considering the global economic situation and instability, it is quite hard to say that this GDP growth will be higher than what is predicted,” he told Astro AWANI, adding that aims to reduce the fiscal deficit to 3.2 per cent of GDP by 2025 was “quite impossible”.

The 12th Malaysia Plan currently aims to narrow the fiscal deficit to 3.5 per cent of GDP.

Hits and misses of Budget 2023

Among the good policies rolled out under Budget 2023, said Benedict, was the introduction of wealth taxes while slashing tax rates for the middle income group.

Anwar, who is also Finance Minister, had said in his speech that the government plans to impose a Luxury Goods Tax for items such as branded watches and fashion products beginning this year.

Meanwhile, income tax for the wealthy will be raised by 0.5 to two per cent for those earning between RM100,000 and RM1 million annually.

At the same time, the personal income tax rate will be reduced by two per cent for those earning RM100,000 and below per annum.

Benedict noted that Malaysia was one of the last few countries in Asia that lacked a Capital Gains Tax.

“It will be very important to study this and consider what must be implemented correctly, along with having the right stakeholder engagement. This will definitely be an improvement in our current tax regime to ensure greater progressiveness,” he said.

He added that another good initiative was removing bureaucracy and offering incentives to local councils to make it easier for businesses to be set up.

“What remains to be seen is the implementation of all this to ensure that Malaysia still remains competitive, especially on the regional level, where we have been losing ground to countries like Indonesia and Vietnam.”

On the Budget’s misses, Benedict said one of the areas where the government has lost out on was in terms of educational reforms.

Research from Bait Al Amanah had found that Malaysia suffered from one the highest learning losses among developing countries in Asia during the COVID-19 pandemic, with a rate of loss of 0.95 years or 11.4 months.

“The good part is a supplementary food program, but it is disappointing to see a lack of initiatives across schools to address learning losses.”

Another issue was the initiative for government -linked companies (GLCs) to offer 35,000 job opportunities for the youth, graduates, veterans and other vulnerable groups.

According to Benedict, having GLCs step in to offer jobs to the unemployed was not the right move as it was more of a stopgap measure.

“The government should never step in to provide jobs in that manner because it creates many unintended consequences. They should focus more on reskilling and increasing productivity of workers instead.”

He also said tax incentives for the aerospace industry was a “misplaced allocation” as Malaysia did not have a comparative advantage in this sector, and that the funds should be given to another industry with better growth prospects.

Empowering the poor

Several initiatives did stand out to alleviate the people’s burden, particularly the goal of putting an end to hardcore poverty, said Benedict.

He pointed out that the allocation of RM750 million for the Inisiatif Pendapatan Rakyat (IPR) program to empower the poor to increase their income level on their own efforts was a novel move.

“This is a new reform to poverty alleviation, which is a focus on upward social mobility, helping the poor to be independent, to be able to earn the money that they need to be able to sustain themselves instead of creating a culture of dependency.”

However, what remains to be seen is the effective implementation of this scheme and ensuring that those who manage to graduate out of hardcore poverty do not stay on as recipients.

He also lauded the government for not “succumbing” to the pressure of the six state elections later this year and avoiding too many one-off cash aids.