Malaysia’s government hopes to spur the economy with a slew of measures, including tax cuts for the middle-income group, spending to digitise small businesses, loans for green technology startups, and topping up the savings of Employees Provident Fund (EPF) members who have very left for retirement.
Prime Minister Anwar Ibrahim, who is also finance minister, unveiled the proposals in a new budget for 2023 late last week. The 386 billion ringgit (US$86.26 billion) financial blueprint is Malaysia’s largest ever budget.
The Southeast Asian country’s gross domestic product grew 8.7% last year and Anwar said the pace is expected to almost halve to 4.5% in 2023 amid headwinds facing the global economy. In spite of the strong annual growth in 2022, fourth-quarter GDP declined 2.6% on a quarterly basis.
The government plans to spend one billion ringgit to help micro, small and medium enterprises to digitise their business, extend 2 billion ringgit of loans to support green technology startups, and contribute 500 ringgit to the EPF accounts of fund members in the 40-54 age group who have less than 10,000 ringgit left.
“This [EPF top-up] will benefit two million people and cost Putrajaya [the federal government] 1 billion ringgit,” Anwar said in his budget speech on February 24.
Deputy Finance Minister Ahmad Maslan said recently that around 6.7 million of the total 13.1 million EPF members had less than 10,000 ringgit left in their accounts after pulling out money via four special withdrawals aimed at tiding them through financial hardship caused by Covid-19. The median savings for all EPF members plunged to 8,100 ringgit last year from 16,600 ringgit in 2020.
The plan to top up EPF accounts didn’t impress at least one fund manager at a local asset management firm, who dismissed it as “merely a populist move”.
“While I was relieved that Anwar did not give in to pressure by other politicians to introduce targeted EPF withdrawal schemes. I find this move not playing a role to improve the state of Malaysia’s pension system,” he tells Asia Asset Management, speaking on condition of anonymity.
Meanwhile, Anwar proposed a capital gains tax on the sale of unlisted stocks, and to allow companies to issue dual-class shares. These moves, according to MIDF Research, may attract more listings at a “granular level”.
“These measures may act as catalysts that would help to reinvigorate the local capital market,” the Kuala Lumpur-based research firm said in a report over the weekend.
Some 40% of government spending in 2023 is forecast to come from income taxes, 24.5% from borrowing and government assets, and the rest from other forms of taxes. Anwar proposed to increase the income tax rate for some high-income earners, and to impose a luxury tax on branded goods such as luxury watches and handbags.
The government has forecast revenue of 291.5 billion ringgit for 2023. The budget deficit is expected to drop to 5% of GDP from 5.6% in 2022.
The budget is a redo of the original blueprint presented under the previous government last October before parliament was dissolved for the general election that brought Anwar to power at the head of a “unity” government comprising his party and some opposition parties.
