BUSINESS

BUDGET 2023 TO BE MILDLY EXPANSIONARY, WITH SUBSTANTIAL FINANCIAL SUPPORT - RHB RESEARCH

10/02/2023 01:42 PM

KUALA LUMPUR, Feb 10 (Bernama) -- RHB Research expects Budget 2023 to remain mildly expansionary in nature, with substantial support to ease the financial burdens of the targeted groups and some aspects from the previous budget likely to be reinstated.

The research firm also believes that there will not be any drastic revisions to the previous budget.

In a note today, it said Malaysia’s economic momentum is likely to slow down in 2023 following the robust growth in 2022.

“Thus, we opine that the budget will still focus on supporting the economic recovery momentum and enhancing people’s well-being, and some structural reforms to strengthen the government’s financial position could be implemented later this year,” it said.

RHB Research noted that planning Budget 2023 remains highly challenging as the government has to find the perfect balance of continued economic support while ensuring fiscal sustainability.

It said that the government’s finances are relatively tight at this juncture, with challenges such as slower economic growth momentum and still elevated inflationary pressures.

“We are keeping our eyes on a few key aspects in the upcoming budget, such as the rationalisation of government expenditure, potential revision in project spending as well as the discussion on revenue resources under the new administration.

“Some of the recommendations made in the previous budget plan may also be included in the new one,” it said.

The research firm also expects business-friendly policies to continue, with support for the small and medium enterprises (SMEs) as well as priority sectors such as technology, tourism, and agriculture, as well as those sectors with export capacity.

There might also be lower preferential tax rates for micro SMEs, micro-loan facilities as well as assistance for start-ups and young entrepreneurs, it said.

“We do not anticipate any major announcement on the consumer discretionary support measures, but cash transfers and other types of assistance to lower to middle-income households would likely be announced,” it said.

Meanwhile, the research house opined that there is limited possibility of significant tax policy reforms to be announced, noting that low to mid-end consumers and SMEs are expected to continue facing challenges, especially in the first half of 2023 (1H23).

As such, it is infeasible for the government to implement significant tax reforms such as the re-introduction of the goods and services tax (GST), imposition of a capital gains tax on securities or increase in the capital gains tax on residential property in the current environment, it said.

“There will be no major changes to the current sales and services tax (SST) mechanism, but we do not rule out the possibility of an expansion of its scope. Besides that, the likelihood for the extension in prosperity tax is limited as well,” it said.

On development expenditure, RHB Research foresees the possibility of cost revision for major infrastructure projects that have yet to commence or start the tender process, such as Mass Rapid Transit Line 3 (MRT3).  

Some large-scale transport-related projects such as the East Coast Rail Line (ECRL) and the Johor Bahru-Singapore Rapid Transit System (RTS) Link are likely to be continued, it said, and an increase in development expenditures allocations to Sabah and Sarawak could also be possible.

As for the allocation for subsidies, RHB Research said that it could be lower in view of the stabilisation in the prices of commodities.

“Nevertheless, we maintain our view that a more targeted approach in subsidy allocation might be underway.

“With Malaysia’s economy likely to stay robust albeit at a slower growth pace and commodity prices remaining well behaved, the timing is appropriate for a gradual adjustment in fuel subsidies,” it said.

The research firm opined that the fiscal consolidation might have to be accelerated once the inflationary pressure dissipates and the economic momentum recovers.

“From our perspective, the government's fiscal consolidation plan should include the enhancement in revenue source as well as the rationalisation of expenditure allocation. Around 27 per cent of total revenues are accounted for by oil-related receipts.

“Other sources of revenues need to be tapped, including tax reforms such as enhancement of consumption tax framework, along with corporate and individual tax reforms.

“Besides that, privatisation of some non-essential assets could be helpful in reducing the government’s financial burden as well,” it said.

-- BERNAMA


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