Malaysia unveils tighter 2023 Budget amid worries of slower growth

Tan Ai Leng
Published Fri, Oct 7, 2022 · 05:38 PM

Malaysia’s Finance Minister Zafrul Aziz announced the second-largest ever Budget in the country’s history on Friday (Oct 7) as the government prepares for an economic slowdown, although there were some cash handouts and tax cuts to woo voters amid fervent speculation of a general election that could be held as early as next month.

He introduced a RM372.3 billion (S$114.6 billion) Budget in Parliament – slightly smaller than last year’s budget which stands at an estimated RM385.3 billion – which gave an indication of Malaysia’s falling revenues.

He added that Malaysia’s economy will see “moderate growth” of 4 per cent to 5 per cent in 2023, due to prolonged geopolitical uncertainties and tighter global financial conditions. This year’s growth forecast was revised upwards to 6.5-7 per cent, from a previous range of 5.3-6.3 per cent.

Zafrul said the focus of this latest Budget was based on three pillars – responsive, responsible and reformist – and cover all social groups and sectors.

“Budget 2023 is responsive to address the challenges faced by different social groups. It is also a responsible budget that could strengthen the country’s fiscal condition in the long term, as well as an inclusive budget that could reform the economic landscape and support all industries’ developments,” he said.

Here are the five main takeaways from Zafrul’s two-hour long speech:

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1. A move to balance fiscal discipline

The total allocation of RM372.3 billion for Budget 2023 is around 20.5 per cent of Malaysia’s GDP, with a budgetary deficit of about 6 per cent.

The federal spending for 2023 is 3 per cent lower than the estimated RM385.3 billion for Budget 2022, which signals the government’s move to balance fiscal discipline and narrow its funding shortfall.

Close to 63 per cent or RM272.3 billion will be allocated for operating expenditure, 25.5 per cent or RM95 billion for development expenditure, RM5 billion for the Covid-19 fund and RM2 billion for contingency savings.

The top three recipients of the budget are the Finance Ministry (RM67.2 billion), Education Ministry (RM55.6 billion) and Health Ministry (RM36.1 billion).

2. Goodies for low- to middle-income earners

Zafrul announced an income tax cut of 2 percentage points for the middle-income group in the RM50,001 to RM100,000 tax band, which will benefit about a million people.

The tax rate for those in the RM50,001 to RM70,000 band will go down to 11 per cent (from 13 per cent today), and those in the RM70,001 and RM100,000 band will see their tax rate lowered to 19 per cent (from 21 per cent).

Those with an annual income of less than RM100,000 are also entitled to a RM100 e-wallet credit offer, with 8 million people eligible for this scheme.

The finance minister also announced an allocation of RM7.8 billion in cash aid for low-income households and individuals, and RM2.5 billion meant for welfare aid.

The government has also allocated an extra RM1 billion to eradicate poverty, with Zafrul saying this move will create economic opportunities to some 50,000 poor households.

3. Opportunities for foreign investors 

Although no mega projects were announced at Budget 2023, there are some infrastructure development projects which could generate opportunities for businesses and the people.

Zafrul announced a RM10 million allocation for a new Collaborative Research in Engineering, Science and Technology Centre that will help to develop the radio frequency and bluetooth technology for the automotive industry.

For the medical industry, there is a RM20 million allocation in grants to support the research and development for medical devices, as well as extending income tax incentive for pharmaceutical exports till 2025.

Zafrul also introduced tax incentives and a RM50 million grant to support the development of aerospace components.

As part of the effort to support Pengerang in Johor to become Malaysia’s petrochemical hub, there will be RM510 million to improve the accessibility to Pengerang, as well as special incentives for investors looking at investing in the chemical and petrochemical industries there.

To attract foreign investors in the electronics and electrical industries that are looking to relocate their operations to Malaysia, the government will extend the existing tax incentives and a tax rate of 15 per cent to eligible investors. 

4. A helping hand for SMEs and micro businesses

Small and medium-sized enterprises and micro enterprises will get an income tax reduction, from 17 per cent to 15 per cent, for the first RM100,000. 

There is an allocation of RM1.7 billion to offer micro loans to small business owners, including RM305 million to help youths to start their business. They can apply for a loan of up to RM50,000. 

Separately, there will be another RM10 billion to be provided under Dana Bank Negara Malaysia for business in tourism, farming and automation.

For equity crowdfunding, Zafrul said the government will continue to provide support under the Dana Malaysia Co-investment Fund with an additional RM300 million.

5. On track to become a greener nation

Zafrul emphasised that Malaysia is committed to achieving net zero emissions by 2050, with various initiatives in the pipeline, including the introduction of carbon tax.

Other incentives include a RM15 billion allocation for flood mitigation efforts, RM3 billion for a Green Technology Financing Scheme and an allocation of RM150 million from Khazanah Nasional to support the development of green projects.

The ministry also allocated RM165 million for Tenaga Nasional to set up solar rooftops and electric-vehicle charging stations.

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