“The budget is an expansionary budget albeit a cautious one. This was indicated by the narrowing of the fiscal gap from 5% of gross domestic product (GDP) in 2023 to 4.3% of GDP in 2024,” said Afzanizam Rashid, chief economist at Bank Muamalat Malaysia Bhd.
The 2024 budget was tabled earlier today by Prime Minister Anwar Ibrahim at the Dewan Rakyat with a total allocation of RM393.8 billion, a 1.5% increase from last year’s RM388 billion. Of this, 77% or RM303.6 billion was allocated for operational expenditure with RM90.1 billion for development expenditure.
The budget has proposed some changes to the taxation system to help the government reduce its fiscal deficit – raising the service tax rate from 6% to 8%, a 10% capital gains tax (CGT) for unlisted companies, and a 5%-10% tax on luxury goods.
It has also proposed to rationalise subsidies on diesel and electricity in phases.
“Raising the services tax rate from 6% to 8%, tax on luxury goods and subsidies rationalisation are some of the key areas that would help the government to lower the fiscal deficit,” said Afzanizam.
Fiscally responsible budget
Geoffrey Williams, an economist at the Malaysia University of Science and Technology, gave his stamp of approval on the 2024 budget.
“The overall fiscal framework is what I had hoped to see with only a small increase in spending to cover inflation, higher revenues from better management, and so a smaller deficit.
“This still allows plenty of space for government spending without excessive borrowing, and is more fiscally responsible than previous budgets.”
While Budget 2024 included a list of extra spending commitments, Williams said they are rightly focused on areas which needed government spending, such as an expanded welfare programme rather than “a list of projects cascading to special interests”.
Anwar announced today an increase in the Sumbangan Tunai Rahmah cash transfer for low-income households from RM8 billion to RM10 billion.
“There is a clearer statement on some short-term subsidy rationalisation schemes and a clear benefit of an increase in Rahmah cash transfers from RM8 billion to RM10 billion. So, this connects subsidies rationalisation with social protection.
He also lauded the progressive taxation reforms proposed under the 2024 budget, which are better targeted at higher-income groups.
Small changes in tax including the CGT and 2% higher services tax focus on higher earners and largely protect low-income groups. This will help increase revenue and shows that small but meaningful tax changes can be helpful without resorting to the goods and services tax (GST).
However, Williams noted there were no details on how the government plans to achieve the seven key targets of the Madani economy framework.
Magnet for listings?
Meanwhile, the imposition of capital gains tax on the disposal of shares in non-listed companies has the potential to attract more listings on Bursa Malaysia, MIDF Amanah Investment Bank head of research Imran Yassin said.
This is especially so given that at the granular level, exemption will be given on a case-by-case basis for initial public offerings (IPO), internal corporate restructuring, and for venture capital companies, he said.
However, he said, the entry of foreign investments into the local market would still be dependent on external factors for now.
Imran also commended the government for the support that will be provided for the implementation of the New Industrial Master Plan 2030, the National Energy Transition Roadmap, and the mid-term review of the 12th Malaysia Plan.
These moves, he said, could help to attract foreign direct investments to Malaysia.