Govt likely to cut subsidies for fiscal strength

Anwar is expected to announce a smaller spending plan for 2024 when he tables the budget in parliament on Friday, say economists. — Reuters

KUALA LUMPUR: Malaysia is expected to make subsidy cuts for the well-off and provide cash aid for the needy as part of its budget plan for 2024, prioritising support for low-income households amidst a global slowdown and fiscal strains.

Public finances are tight for the export-driven economy, whose growth is expected to moderate 4% to 5% this year, from 8.7% last year.

Prime Minister Datuk Seri Anwar Ibrahim is expected to announce a smaller spending plan for 2024 when he tables the budget in parliament on Friday, according to economists.

He is also expected to announce cuts to electricity and petrol subsidies as well as other measures to alleviate the rising cost of living.

“With efforts to pull in investments, socioeconomic restructuring, and the need for fiscal resilience, we believe there is a strong likelihood the budget will focus on fiscal tightening with an emphasis on funds reprioritised to households and sectors most needy,” CGS-CIMB Research said in a note.

It expects Malaysia’s fiscal deficit to narrow to 4.3% of gross domestic product (GDP) from an estimated 5% this year, partly due to the subsidy cuts.

Economy Minister Rafizi Ramli said last week the government would announce, in the 2024 budget, a shift to targeted subsidies that will save at least RM4.7bil to RM9.5bil a year. Cash aid may also be given, according to Rafizi.

Malaysia has blanket subsidies for petrol, cooking oil and rice, and since coming to power in November, Anwar has vowed to move to a targeted subsidy system that mainly assists the lower-income groups.

The government’s outlay on subsidies has ballooned in recent years due to rising commodity prices.

The country expects to spend RM81bil in subsidies this year.

According to economists, Anwar is expected to announce steps to implement capital gains and luxury taxes first mooted in the previous budget to broaden revenue base.

Some also said Malaysia could reintroduce the goods and services tax (GST) from late 2024 or early 2025.

It was first introduced in 2015 at a rate of 6% but was scrapped in favour of the sales and service tax in 2018. The current rate for sales tax is 5% to 10% while the service tax is 6%.

Kenanga Research said the government might transition to GST at a lower rate of 4%.“Since the government plans to reduce subsidies for higher-income individuals first before reintroducing the GST, we reckon that this transition may only happen in the second half of 2024,” the research house said. — Reuters