The Federal Government has raised its revenue target for the five-year period in 2021-2025 to RM1.43 trillion under the 12th Malaysia Plan Mid-Term Review (12MP MTR), from RM1.22 trillion forecasted previously.
On the broadening of the revenue base, the plan was silent on the reintroduction of the goods and services tax (GST). Instead, the capital gains tax (CGT) will be introduced in January 2024. This is not surprising as the proposed introduction of the CGT on non-listed shares of corporates was announced in the 2023 budget. The CGT would stifle start-ups and entrepreneurship development. There is no guarantee that the CGT will not extend to cover other asset classes in the future.
Source: https://www.acccimserc.com
Meanwhile, the Government will spend RM90 billion each year in development expenditure in 2024 and 2025. It has earmarked RM97 billion in development spending in 2023.
The GDP growth target throughout the 12MP is projected at 5% to 6%, from 4.5% to 5.5% target earlier prior to the review. Malaysia’s GDP growth stood at 5.9% in 2021-2022, and is seen at 5% to 5.5% in 2023-2025. This is a “tall” order or an aspirational goal!
Fiscal deficit target is at 3% to 3.5% of national GDP by 2025, from the expected 5% for 2023.
Private consumption, which increased by 5.1% in the first half (1H) of 2023, is projected to increase by 6.1% p.a. in 2023-2025 (6.4% p.a. in 2021-2022), supported by stable labour market conditions and better income growth. The unemployment rate is projected to improve significantly to 3.3% in 2025 from 3.9% in 2022.
Private investment, which had grown by 4.8% in 1H 2023, is projected to increase by 6.4% p.a. in 2023-2025 (4.9% p.a. in 2021-2022), looks feasible if we manage to attract high inflows of quality foreign direct investment and drive more domestic direct investment. Nominal private investment would amount to RM328.4bil or 15.2% of GDP in 2025 (RM222.3bil or 15.7% of GDP in 2020).
Inflation is expected to increase by between 2.8% and 3.8% p.a. in 2023-2025 (2.8%-3.8% in 2021-2025), attributed to the gradual implementation of a targeted subsidy. Inflation pressures could flare up given the risk of supply shocks as well as changes in domestic policies concerning price subsidy and ceiling price controls. Business cost pressures, including employment costs could emanate from the implementation of a multi-tiered levy and Progressive Wage Model, along with still elevated cost of domestic and imported inputs.
Gross exports, which had expanded strongly by 25.5% in 2021-2022 have declined by 5.9% in Jan-Jul 2023, are projected to increase by 3.7% p.a. in 2023-2025. This will be supported by the expected economic recovery of major trading partners, trade expansion leveraging on the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. A conducive trade ecosystem to facilitate exports will enhance export capacity and expand market access.
A beautiful plan could be prepared. The key is execution. This is the key sticking point for most of Malaysia Plans. Actually it is true for most countries with some form of central planning. The other is leakages – we now have a culture where 30-50 sen out of every ringgit could go to non-productive sectors. A laptop that costs RM1,000 is bumped-up to RM1,500 – and who pays? The rakyat. So, for the PM to succeed he needs to have great monitoring/follow-up and exceptional control of leakages. And what is at stake is Madani Government’s ability to deliver the “Promised Land”.
References:
Putrajaya lifts revenue, GDP growth target for 2021-2025, Izzul Ikram & Choy Nyen Yiau, TheEdgeMalaysia.com, 12 September 2023
How the Mid-Term Review of 12MP stacks up, Lee Heng Guie, The Star, 14 September 2023
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