Moderating global economic growth in the second half-year of 2023 (2H23) and in early 2024 suggests global real gross domestic product (GDP) may grow between 2.4% and 3% in 2024.
For Malaysia, three key risks stand out regarding the domestic economic outlook in 2H23 and 2024. The first relates to the lag effects of higher interest rates in advanced economies and the downside risks to China’s economy.
The second risk is inflation and cost of living pressure which the Madani government had entrusted a task force or committee to tackle. Food inflation and services (transportation) inflation might return, given the anticipated domestic subsidies rationalisation scheme.
Source: https://www.thestar.com.my
The third risk is continued high business costs due to the weakening ringgit, wages, energy bills, and climate change as well as environmental, social and governance (ESG) compliance costs.
Budget 2024, to be tabled on Oct 13, is an important one as it has to initiate some unpopular yet necessary reform measures to rebuild fiscal buffer. Revenue limitations, rising costs and subsidies pressure had taken a heavy toll on the budget. The budget will still need restrictive yet responsible spending.
Amid the allocation of development expenditure estimated at RM90bil in 2024 (RM97bil in 2023), the ministries and agencies must have the implementation capacity.
The budget must have measures to ease the burden of the vulnerable group and lower-income households, unleash the potential of green growth and transition, accelerate smart technology and digitalisation, job creation and income enhancement as well as care for the elderly and ageing community.
There has to be measures on food security and tourism. A review of the Malaysia My Second Home and higher allocation for the preparation of Visit Malaysia Year 2025 need to be tabled. The property sector may need a lift like the Home Ownership Campaign and the stamp duty exemption for properties priced from RM300,001 to RM1mil.
The government should include a detailed plan on measures to broaden its revenue base. Attempting to address revenue shortfalls through the luxury and capital gains tax (CGT) on the disposal of non-listed private companies’ shares, could have adverse effects on the domestic luxury goods market, entrepreneurial and start-up development. There are concerns that the CGT will cover other asset classes too. The government should lay down a fiscal consolidation roadmap, outlining a timeline to broaden revenue and control expenditure (especially inflated prices for mega projects) and not some ad-hoc measures.
Roll out the targeted subsidy rationalisation on fuel in stages and gradually. Otherwise it is inflation – a tax on the poor. Prices of subsidised goods and services could also be gradually raised to allow manageable impact on inflation and cost of living pressure. Resource allocation of the budget must also address the fundamental issues of effective governance. The government has to expedite the enactment of the Fiscal Responsibility Act and Government Procurement Act in 2023-2024.
There are two key sectors that will have an impact on GDP – services and manufacturing, together they make up over 80% of our GDP. So some specifics on this may include:
• Reinvestment Allowance (RA) is extended for businesses that have exhausted their 15-year term and the additional RA will end by end-Dec 2024.
• Appoint a lead ministry or agency to oversee national ESG agenda, together with the participation from all other ministries and agencies.
• Low-hanging measures to encourage the installation of solar for the households and businesses. We need some support to implement this and TNB could assist with the capex subsidy for consumers.
• The budget could reveal the structure of the Progressive Wage System (PWS), which aims to uplift the wage of employees linked to productivity improvement and up-skilling.
• Remove APs and heavy protective duties to shelter re-badged Protons, Peroduas and Modenas.
• Actively work on reducing red-tape – the cause for more corruption.
• A total of RM1.37 trillion of Domestic Direct Investment (DDI) was approved since 2013 to the first quarter of this year. Of this, 73.3% came from the services sector, the manufacturing sector (21.3%) and the primary sector (5.4%). Focus on SMEs and steps to assist them.
Of course, as individuals we want tax relief or low taxes, greater support/subsidy and less government. But that’s not possible if we want world-class services. Just review the Scandinavian countries, their tax rates are “high” but they provide a range of services which consumers find good or reasonable. The outcome is low income inequality and everyone enjoys an acceptable and similar standard of living.
The other is to mimic “low” tax havens and leave “market forces” to determine price, quality and quantity. Then there are still many other countries which take a “middle” path and end-up in confusion! We need to be clear on what we want, the Scandinavian model? The laissez faire model? Or, some “mixture” which requires adequate definition!
Reference:
The reforms we need in Budget 2024, Lee Heng Guie, The Star, 21 September 2023
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