KUALA LUMPUR – Malaysia on Friday (Feb 24) unveiled plans to scale back spending for the year and tax the wealthy as prime minister Anwar Ibrahim focuses on narrowing the budget deficit while supporting a slowing economy.
Three months into the job, Anwar is facing a sharp moderation in Malaysia's export-driven economy, lower revenue and growing calls to address higher costs of living.
Anwar, who is also finance minister, vowed to maintain subsidies and other government support for lower-income groups, while broadening the revenue base through taxes targeting luxury goods and capital gains.
"Given that the income and wealth of the country is concentrated among the wealthy and elites, it is appropriate that the distribution of national revenue is focused on low and middle income groups," Anwar said in parliament as he presented the 2023 budget.
He asked for the wealthy to take "joint responsibility".
Anwar forecast the deficit to narrow to 5 per cent of gross domestic product (GDP) this year from 5.6 per cent last year.
The estimate is more ambitious than his predecessor's earlier target of 5.5 per cent.
The government will introduce a luxury goods tax this year for items such as luxury watches and fashion goods.
Income tax will be raised by up to 2 per cent for some high income individuals, Anwar said.
Malaysia will also consider implementing a capital gains tax "at a low rate" for the disposal of unlisted shares by companies from 2024, he said, adding that a broad-based consumption tax was out of the question for now.
The government plans to provide up to 64 billion ringgit (S$19.4 billion) in subsidies, aid and incentives this year.
The budget is the first big policy announcement by Anwar, who was elected in November.
His predecessor had presented a budget plan for 2023 in October, but it was not passed in parliament due to the election.
The prime minister, who heads a coalition government that includes former rivals, stuck to his reformist roots and promised to clean up government finances, minimise leakages and strengthen governance to shore up the deficit.
Government agencies were investigating various corruption cases, including those linked to the Pandora Papers leaks, he said.
He faces a challenge in the economy, which is expected to grow 4.5 per cent in 2023 compared to 8.7 per cent last year – the highest in 22 years.
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Export growth is expected to moderate to 1.6 per cent this year, down sharply from 25 per cent last year.
In parliament, Anwar said he was confident Malaysia would exceed the 4.5 per cent target.
The government proposed to spend 386.1 billion ringgit this year, lower than last year's preliminary spending estimate of 395.2 billion ringgit.
Revenue is expected to drop to 291.5 billion ringgit from 294.4 billion ringgit.
State oil company Petronas is expected to pay a dividend of 40 billion ringgit, higher than the previous government's projection of 35 billion ringgit.
Anwar's government has also said it would gradually reduce debt, which increased in recent years to fund a massive stimulus program during the Covid-19 pandemic.
Government debt is seen at around 62 per cent of GDP in 2023, up from 60.4 per cent last year. The debt ceiling was at 55 per cent before the pandemic.