KUALA LUMPUR, Oct 8 — Pro-growth measures in Budget 2023 would help cushion the Malaysian economy against an expected global recession, according to economists and a trade group who lauded the overall plan.
However, they expressed misgivings over the government’s reluctance to widen its tax base, particularly by reintroducing the goods and services tax (GST) a previous rival administration had eliminated.
UniKL Business School Assoc Prof Aimi Zulhazmi Abdul Rashid said the record RM372 billion allocations — RM40 billion more than Budget 2022 — demonstrated the government’s seriousness in ensuring the country’s economy would be in the best position possible next year.
“This large Budget is needed to help the national economy fully recover, especially the SME (small and medium enterprises) sector, and to ensure that the domestic economy continues to be the (primary) engine next year when we are expected to face the global economic recession.
“Overall, it is a Budget that covers people from all walks of life with more subsidy increases in line with the current economic situation,” Aimi said when contacted by Malay Mail.
Elaborating, Aimi said a tougher global economy next year meant domestic trade must be the growth engine for the nation’s gross domestic product (GDP) and preserve jobs.
“Interestingly, the government’s projected income was not mentioned in the speech specifically but the minister is projecting a smaller deficit next year,” he said.
He noted that Budget 2023 contained assistance specifically for the country’s bottom 40th (B40) and middle 40th percentile (M40) of income earners as well as SMEs, which would help remedy the likely effects of further interest rate hikes that are still being predicted.
The two-basis point reduction in personal income tax for those earning between RM50,000 and RM100,000 would put hundreds of millions back into the pockets for salaried Malaysians, which would help them preserve their quality of life during an expected economic slowdown.
The same measure for micro-SMEs would also help protect their revenue stream during the same time, he said.
Economist and Centre for Market Education’s chief executive Carmelo Ferlito described the tax cuts as a brave and welcome initiative.
“This is an essential part of a pro-growth strategy, but it needs to be accompanied by a more holistic strategy of spending cuts and better tax collection enforcement, to avoid compromising the fiscal position of the government (and creating more inflation).
“I would say that the tax cut, together with other programmes for SMEs such as grants and loan scheme, sends a signal which is the moment ‘to ride the tiger’ and this can create positive expectations which may be helpful in facing eventual economic difficulties,” Ferlito explained.
He emphasised that he was supportive of the measures, but stressed that they must be offset by savings in the government’s operating expenditure to ensure balanced spending across the long term.
Ferlito noted that Budget 2023 did not contain any such rationalisation, and instead saw rises via increases to the already-high civil service wage bill and burgeoning subsidies.
“If we do not improve revenue collections and cut spending, debt and inflation will become more serious problems.
“In particular, in the light of tax cuts. Tax cuts are tremendously important, but they are one side of the coin. If expenditures are not effectively rationalised, then we are in trouble,” he said.
He suggested that the government relook its multiple roles as employer, investor, and developer, start to rethink at how goods and services can be provided without its direct involvement.
Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) president Tan Sri Low Kian Chuan acknowledged that the Finance Ministry (MoF) faced a very difficult task in addressing the economic and business challenges facing the country.
Low said the ministry still managed a comprehensive Budget 2023 that covered all segments through a wide range of cash assistance, tax breaks, incentives, grant as well as facilitation funds to households, businesses and economic sectors.
He added that the Budget also reflected how the government was resorting to a mix of incentives, grants and facilitation funds to encourage automation, digitalisation, ESG (environmental, social and governance) and also promote the development of agriculture, food security.
“The comprehensive review of subsidies for necessities is a step in the right direction to re-channel the limited public resources for more productive use such as education, healthcare, infrastructure, housing, supporting the ageing society.
“Cash handouts must be specifically targeting those groups actually in need of welfare,” Low said in a statement.
However, he registered the ACCCIM’s disappointment that the government did not announce new tax reforms to widen its tax base, such as reintroducing the GST.
“We propose to the government to preannounce the implementation of GST on January, 1 2024, giving a lead time of 12 months for the preparation.
“ACCCIM’s survey indicated that the business community supports the GST implementation, and requires at least six to 12 months lead time for implementation,” he said.
Low said the ACCCIM was also concerned with the proposal to channel excess payments from the multi-tiered levy for foreign recruitment to be imposed next year, to employers for the purpose of automation.
He said his group was neither consulted or briefed about this initiative.
Yesterday, Finance Minister Datuk Seri Tengku Zafrul Abdul Aziz tabled Budget 2023 amid relentless rumours that Parliament would be dissolved soon after to pave way for the 15th general election.
Despite expectations of an election Budget as a result, Tengku Zafrul introduced a restrained and responsive federal spending plan for 2023.