Priority on raising rakyat’s welfare

Prime Minister Datuk Seri Anwar Ibrahim, who is also the Finance Minister, delivered a Budget speech focused on changing the social welfare structure of Malaysians. The largest spending package ever announced aims to improve the welfare of the rakyat (people).

Subsidy rationalisation was a major highlight of the Budget speech, with Anwar indicating a shift towards a more equitable formula. The plan is to reserve subsidies for the most vulnerable and needy Malaysians, while those who can afford to pay the non-subsidised price will be expected to do so. The reprioritising of subsidies will be implemented gradually starting next year, and service tax will increase from 6% to 8%.

The government also introduced a capital gains tax of 10% on unlisted shares as a means to raise additional finances without burdening the B40 (bottom 40% income group). However, this move drew criticism from small and medium-sized enterprises (SMEs) as it resembled a “wealth tax” on businessmen and the wealthier population.

The funds saved from subsidies will be channelled towards other segments of the economy, with the healthcare sector receiving the largest increase in allocation. The budget for healthcare was raised to RM41.2 billion, and a substantial sum of RM5.5 billion was allocated for medical supplies. This focus on healthcare aims to improve healthcare services in Malaysia.

The reprioritisation of subsidies and subsequent price increases may lead to inflationary pressures. The government has cautioned against businesses raising prices without justification, but it acknowledges that prices may rise similar to the impact of the Goods and Services Tax (GST) introduction and removal of petrol subsidies in the past. The government’s inflation forecast has a 1.5% buffer between the lowest and highest projections of 2.1% and 3.6%.

The Budget also emphasized the importance of investments in creating jobs and boosting GDP, especially amidst a challenging global economic climate. The government intends to attract high-growth and high-value investments by proposing various incentives. To support this objective, the Prime Minister will have a National Investment Council reporting directly to him.

The government’s commitment to the Public Finance and Fiscal Responsibility Act was evident through the allocation of funds to different ministries, the reinforcement of the country’s renewable energy plan, and cash transfers to Malaysians. Despite the record spending package, the projected fiscal deficit is expected to drop to 4.3% of GDP. However, the debt service ratio will increase to 16.4% of government revenue, approaching a concerning level.

Adherence to sustainable fiscal policy is crucial for maintaining a well-thought-out government spending package, preserving the country’s international rating, and sustaining the strength of the ringgit.

Budget 2024 veers from past traditions and aligns with the continued expansion of the Madani Economy plan.