Kuala Lumpur, 13 October 2023: IDEAS congratulates the government for tabling its second Madani budget ahead of the budget year, hence allowing parliamentarians to have sufficient time to scrutinise the fiscal policies, target and programmes for 2024. New revenue sources are encouraging, but serious and ongoing efforts to create more fiscal space must continue in the medium to long term.

Commenting on the fiscal outlook, Dr Tricia Yeoh, IDEAS CEO, said, “Malaysia’s growth projection of 4%-5% for the budget year is realistic, and so is the fiscal deficit target of 4.3% of GDP. The government’s target to achieve the fiscal deficit target by 3% of GDP in the next three to five years as mandated by the Public Finance and Fiscal Responsibility (PFFR) Act could possibly be achieved, especially because of the announcement of new sources of revenues namely the Capital Gains Tax, Luxury Goods Tax and the increase in the Service Tax rate from 6% to 8%. However, in the long run, the government may wish to seriously consider restoring the Goods and Services Tax (GST) to further widen our tax base, given Malaysia’s poor tax to GDP ratio when compared with our regional peers.”

“More importantly, the financial contribution of these new sources of taxes to total revenue was not announced in today’s budget speech nor are they made available in various budget documents published today. In the interest of transparent public financial management, we call on the government to provide detailed revenue and expenditure targets for the next three to five years to ascertain that the mid-term fiscal deficit targets are indeed achievable.” 

“Further, the modest trim on subsidies in electricity and diesel is minimal and insufficient for creating fiscal space for investing in development in the long term. Budget 2024 allocates RM58.1bil for subsidies, whereas subsidy spend for 2023 was reported to reach RM77.7bil as of 12 October. Given that the major contributor to subsidy increases is petroleum products, we are concerned whether the government’s projections on subsidy savings are accurate. The government should disclose assumptions for these estimates. In addition, the government needs to announce a definite mid-term plan and mechanisms for implementing targeted subsidies in order to provide predictability in the phased transition to subsidy rationalisation.”

While major infrastructure project announcements are indeed positive, it is crucial to prioritise the tabling of the government procurement bill next year. Dr Yeoh commented, “On this note, we welcome the Prime Minister’s commitment to tabling the Government Procurement Act in 2024. This step is essential to guarantee that the procurement process will be transparent, accountable and efficient. This will also contribute positively to investor confidence as it strengthens the country’s commitment to the rule of law.”

On the country’s economic direction, Research Director Dr Juita Mohamad said, “In line with the strategic direction of the New Industrial Master Plan (NIMP) 2030, one of the main pillars of the Budget is to restructure the economy to facilitate growth and improve economic complexity. Budget 2024 has encouraging aspects focusing on micro, small and medium enterprises (MSMEs), particularly on increasing competitiveness, development of local talents and improving access to financing. As in previous years, generous allocation has been allocated to the automation and digital transformation of MSMEs. To date the efforts on digitisation and automation remain the same. Without any new effort, the focus has to be on effective disbursement of funds, so that uptake for MSMEs to digitise and automate can be improved significantly.”

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