Budget 2024 set to bring bold reforms, such as rationalising subsidies
PETALING JAYA: With election worries mostly out of the way, Prime Minister Datuk Seri Anwar Ibrahim is expected to roll out bolder measures and reforms under Budget 2024.
The spotlight will be on the government’s attempt to slash subsidies that may cross RM81bil this year, plug fiscal leakages and address the ballooning RM1.39 trillion national debt.
The financial markets and high-earners will also be looking out for new tax measures, as the government had hinted its intention to tax the ultra-rich more in order to expand its revenue base.
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The potential tax measures will add on to the capital gains tax on disposal of unquoted shares and a tax on luxury items, which were announced under the revised Budget 2023 in February.
Budget 2024 will be tabled in Parliament tomorrow.
Despite the government’s efforts to trim expenses, economists still anticipate an expansionary budget for next year.
In the revised Budget 2023, the government had allocated RM386.1bil for expenditures, against a projected revenue of RM291.5bil.
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Socio Economic Research Centre (SERC) executive director Lee Heng Guie said he expects to see “responsible spending” in Budget 2024.
Speaking to The Star, he said blanket subsidies that were costly and unsustainable must be phased out and targeted social spending should remain a short-term priority.
He noted that the government is committed to a continued fiscal deficit reduction path, to between 4.5% and 5% of gross domestic product in 2024 from an estimated 5% in 2023.
“The Finance Minister must focus on providing a platform for fiscal consolidation to strengthen fiscal health while at the same time continuing to support economic growth, ease cost of living pressure, drive innovation and technology as well as investment in key sectors.
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“The government should include a detailed plan on measures to broaden its revenue base on a sustainable basis as well as responsible spending with better outcomes,” he said.
Economist Geoffrey Williams opined that Budget 2024 should incorporate fiscal consolidation, significant cuts in wastage and a set of clear policies focused on the seven Madani Economy targets.
The economics professor at the Malaysia University of Science and Technology said that unfortunately, Budget 2024 would likely entail increased spending by the government.
“It would put further pressure to raise taxes, which is bad,” he said.
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Universiti Kuala Lumpur Business School associate professor Aimi Zulhazmi Abdul Rashid, meanwhile, said Budget 2024’s top priority should be about increasing Malaysians’ income levels.
He highlighted the urgent need to restore and improve the people’s purchasing power, which he said had decreased due to the long-term effects of the Covid-19 pandemic as well as the consequences of escalating prices of goods since 2021.
This is also necessary as the country’s inflation pressure could increase next year as subsidies are rolled back.
In an earlier note, Public Investment Bank Bhd estimated that eliminating fuel subsidies for the top 20% (T20) income earners would increase inflation by an additional 0.45 to 0.75 percentage points annually.
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“Budget 2024 should outline the government’s plan to deal with the issue of national food security following the increase in food prices and the lack of food supply as witnessed recently,” said Prof Aimi Zulhazmi.
He also expects to see measures to stimulate a more active and resilient domestic economy in Budget 2024.
“This is necessary considering that the country’s exports have declined for eight months in a row this year and we must be prepared in view of the global economy continuing to slow down in 2024,” he added.
According to him, Budget 2024 has to focus on encouraging and facilitating both foreign and domestic direct investments.
“This should not be confined to incentives for infrastructure and financial facilities, but also the transfer process of operations (for foreign companies to enter Malaysia),” Prof Aimi Zulhazmi suggested.
Earlier in August, Anwar had expressed his administration’s commitment to strengthening both foreign and domestic direct investments.
A decision has been made to reactivate the Investment Coordination Committee between the Investment, Trade and Industry Ministry and all investment promotion agencies.
On another note, Williams said the upcoming budget presented an opportunity for the Anwar administration to show credibility, accountability and transparency in fiscal policy.
“I would like to see a plan to cut debt financing, which is the second largest part of spending, and a plan to cut civil service pay costs, which are RM31bil – almost as much as what is spent on public health.
“We also need to see the plan for subsidy rationalisation and cash transfers through the Central Database Hub (Padu), and the details of the progressive wage system,” he added.
