Malaysian budget gives tax breaks to less well-off

Malaysia's proposed budget for 2023 is expected to boost support for the government after analysts praised its optimistic growth outlook and measures to address living costs and inflation, key concerns during the post-pandemic recovery.

Prime Minister Anwar Ibrahim presented to the parliament the 2023 budget of 388.1 billion ringgit ($87.5 billion), the largest in the country's history, on Friday. Highlights include financial subsidies for low-income households, a luxury goods tax, and tax breaks for small and medium-sized businesses.

The Malaysian government is committed to upholding social justice, Anwar said in a speech. He said that as most of the nation's wealth is held by elites and the super-wealthy, it is reasonable to distribute resources in a way that prioritizes low- and middle-income groups.

Wan Suhaimie Wan Mohd Saidie, head of economic research at Kenanga Investment Bank, said the proposed budget was "finely crafted", placing heavy emphasis on subsidies and tax reforms, and increased allocations for social development and education.

Anwar pledged that the Ministry of Education would receive the biggest share of the budget — more than 55 billion ringgit, which includes 2.3 billion ringgit for new infrastructure and learning facilities.

Wan Suhaimie said this would generate support for Malaysia's unity government, which the Anwar-led coalition will welcome ahead of six state elections this year.

"I feel the most important way to help with the cost of living is the decision to keep subsidies," said Sanjay Mathur, chief economist at ANZ Bank. He noted a 2 percent tax cut for households earning 35,000 to 100,000 ringgit a year, and financial assistance for households earning under 2,500 ringgit a year.

Anwar had proposed raising some tax rates to "fiscally compensate," he said.

"This administration is taking an expansionary fiscal approach in an effort to support economic growth, so that the spillover effects can be enjoyed by everyone," the prime minister said on Friday. He said the government would take a "progressive approach in the context of targeted subsidies or tax structure, to protect the less fortunate", and he asked more affluent citizens to "share this responsibility".

To this end, Anwar has proposed a 0.5 percent to 2 percent tax increase for households earning between 100,000 and 1 million ringgit a year. A tax will also be slapped on luxury goods, while a capital-gains tax is being considered for unlisted share disposal.

Challenges remain

Anwar said he is confident Malaysia will exceed the projected 4.5 percent growth this year, but he noted that the country needs to navigate global economic uncertainty. This includes inflationary pressures brought by the Ukraine-Russia conflict and a slowdown in global trade.

Serina Abdul Rahman, a lecturer at the National University of Singapore's Department of Southeast Asian Studies, welcomed the luxury tax and increased funding for social infrastructure.

"There does seem to be many initiatives to help rural and poor communities," she said. "But at the end of the day, we have to wait and see how many of these initiatives reach the ground or if they are just sweetener announcements."

Hafidzi Razali, a senior analyst at the risk consultancy Bower Group Asia, said financial aid combined with food vouchers would "greatly assist the poorest", while fuel subsidies should keep inflation in check. "Several new taxes have been introduced, … but it is unclear whether the value can support additional expenditures," he said.