PETALING JAYA: Budget 2023 fuels domestic consumption but disregards any strategy to enhance revenue, which is required to address Malaysia’s fiscal state of affairs, economist Nungsari Ahmad Radhi said.
“A feel-good budget that puts all the hard questions on the back burner. The only good thing is the cash transfers will translate into consumption expenditures while also helping those who need help. Short term and not much for the future.
“It throws populist bits everywhere, which will translate into consumption – what’s driving the economy nowadays. But the budget is clearly an election budget, generous on spending and even a bit of tax cuts, but without any attempt to address the worsening state of fiscal affairs,” he told SunBiz.
Yesterday, Prime Minister Datuk Seri Ismail Sabri Yaakob announced the dissolution of Parliament, paving the way for a general election.
As the country’s revenue continues to decline (against percentage of gross domestic product), Nungsari stated that Budget 2023 puts aside any plan to increase it as well as does not set the fiscal state of affairs on a strengthening trajectory in terms of debts and obligations for the future.
“Debts will increase further and the development expenditures budget has been increased – all of which has to be borrowed – which raised suspicion that some of it will cover what used to be covered by operating expenses which is now almost equivalent to revenues,“ he said.
In addition, Nungsari explained that there is not much policy space left in the budget as fixed overheads such as government servants’ pay, pensions and debt servicing have taken up a chunk.
“I find the forecasts on growth for next year and even for revenues to be optimistic in light of the slowing global economy next year. This budget leaves the government with very little wiggle room to shield their forecasts (which are on the optimistic side) fall short,“ he opined.
Center for Market Education CEO Dr Carmelo Ferlito commented that Budget 2023 gives too many goodies with no strategy for rationalising operational expenditures.
“On the bright side, I welcome tax cuts, SME grants and SME loan schemes (and the announced special scheme for FDI): these moves are necessary and welcome. But, to not further compromise the fiscal position of the government and inflationary pressures, they should be accompanied by rationalisation of operation expenditures and better tax collection enforcement (and here I do not see an adequate vision),” he said.
The government has allocated RM372.3 billion for Budget 2023, compared with RM332 billion for Budget 2022. Revised upwards from what was initially tabled, Budget 2022 came up to RM385.3 billion.
Of the total allocation for Budget 2023, RM272.3 billion is allotted for operating expenditure and RM95 billion for development expenditure, in addition to RM5 billion for the Covid-19 fund and RM2 billion under contingency reserve advance warrant.
Comprising 43.3% of total expenditure, the largest beneficiaries of Budget 2023 are the Finance Ministry (MOF) with RM67.2 billion, Education Ministry with RM55.6 billion and Health Ministry with RM36.1 billion.
According to MOF, the global environment remains uncertain as geopolitical tensions persist and growth is expected to slow down while major commodity prices are anticipated to be weaker following lower demand mainly for energy.
Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said the situation requires the country to be vigilant. “The possibility of geopolitical unrest and the global economic slowdown impact requiring us to be flexible to face any eventuality,“ he said.
In line with this, Malaysia’s expected economic growth between 4% and 5% coupled with the anticipated moderation in global commodity prices.
Tengku Zafrul said federal government revenue is expected to decrease 4.4% in 2023 to RM272.57 billion from RM285.22 billion (22.0% growth) in 2022 due to anticipated lower non-tax revenue collection. The non-tax revenue is expected at RM67 billion (3.7% of GDP), declining 23% from 2022 due to lower dividends from government entities, particularly dividends from Petronas which is projected to be lower at RM35 billion.
Consequently, MOF projected the federal government’s revenue to decline by 4.4% to RM272.6 billion.