Malaysia announces smaller budget, eyes subsidy cuts to narrow deficit

KUALA LUMPUR — Malaysia on Friday (Oct 13) unveiled a tighter budget for 2024, focusing on subsidy rationalisation to strengthen its fiscal position, as an economic slowdown puts a strain on government spending.

Prime Minister Anwar Ibrahim is under pressure to revive Malaysia's export-driven economy amid moderating growth, a weakening local currency and a rising cost of living.

Anwar, who is also finance minister, is pushing a shift away from blanket subsidies to a system that mainly aids lower-income groups.

In a report released alongside the budget presentation on Friday, Anwar said his administration would prioritise the wellbeing of the people and focus on strengthening Malaysia's fiscal sustainability.

"The prosperity of the nation must benefit all segments of society... it is vital to ensure that the economic pie distribution is fair and equitable," he said.

Deepened geopolitical tensions and further tightening of monetary policies to offset inflation have increased the risk of a global slowdown, Anwar said, adding that Malaysia is not immune to these developments.

Anwar in his budget speech to parliament said his government was confident of reaching its 2024 economic growth target of close to five per cent.

He said service tax would be increased to eight per cent from six per cent and a capital gains tax would be enforced at a rate of 10 per cent from March 1 next year. A high-value goods tax of five per cent to 10 per cent would also be introduced, he said.

Targeted subsides would be implemented in phases starting next year and the savings from subsidy rationalisation would be channelled to increase cash aid from RM8 billion (S$23 billion) to RM10 billion, he added.

Temporary price controls on chicken and eggs would be lifted as supplies had stabilised, Anwar said, and the government intended to rationalise diesel subsidies in a phased manner.

The government forecast the fiscal deficit to further narrow to 4.3 per cent of GDP in 2024 from an estimated 5per cent this year.

Malaysia lowered its outlook for this year's economic growth to about four per cent and forecast four per cent to five per cent expansion in 2024.

Anwar's government plans to spend RM393.8 billion in 2024, lower than this year's spending estimate of RM397.1 billion.

Malaysia is projected to spend RM52.8 billion on subsidies and social assistance in 2024, down from the RM64.2 billion expected this year.

Inflation could go higher due to the move to targeted subsidies, the government said.

Malaysia expects inflation at 2.1 per cent to 3.6 per cent for next year, compared with this year's revised estimate of 2.5 per cent to three per cent.

In the budget report, the government said it would shift to a targeted subsidy system for fuel and electricity, but did not elaborate.

Revenue for next year is expected to jump to RM307.6 billion from RM303.2 billion.

State oil company Petronas is expected to pay the government a dividend of RM32 billion next year, lower than the RM40 billion projected this year, reflecting reduced dependency on petroleum-related revenue.

Federal government debt is seen at around 64 per cent of GDP in 2024, up from 62 per cent this year.

The government said it is committed to reduce the debt-to-GDP ratio through policy measures, including a newly passed fiscal responsibility act.

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