top of page
pattern mier big white.png

The Vibes: GST to fund massive Budget 2023?

Yesterday, the nation witnessed the unveiling of a record RM372.34 billion federal spending plan for next year by Finance Minister Datuk Seri Tengku Zafrul Tengku Abdul Aziz, surpassing this year’s national spending by RM40 billion. – The Vibes pic, October 8, 2022

KUALA LUMPUR – Much of the Budget 2023 was predictable despite the drama and speculation over the possible dissolution of Parliament that went on earlier this week – especially Prime Minister Datuk Seri Ismail Sabri Yaakob’s movements on Thursday.

At 4pm yesterday, the nation witnessed the unveiling of a record RM372.34 billion federal spending plan for next year by Finance Minister Datuk Seri Tengku Zafrul Tengku Abdul Aziz, surpassing this year’s national spending by RM40 billion.

In next year’s Budget, as much as RM94.3 billion has been allocated for development expenditure, the highest to date – the allocation for 2022 was RM71.2 billion.

As soon as this was announced, the question on everyone’s minds was how will this budget be funded and do we have the money?

Implement GST?

Tax leader of Deloitte Malaysia, Sim Kwang Gek believes tax collection continues to be the largest contributor to the government’s revenue, representing 75.4% of total revenue.

“This is an increase of 3.7% compared to 2022 and shows that the government relies heavily on taxes as an important source of revenue. The government expects an increase in corporate income tax collection by 4.8% despite global headwinds and uncertainties in 2023.

“New measures such as the implementation of e-invoicing and TIN (tax identification number) should provide more room for the tax authorities to shore up tax revenue. However, in the longer term, Malaysia needs to consider a broader-based tax system such as the GST (goods and services tax) to have a more sustainable source of revenue,” Sim told The Vibes.

Populist budget?

It was also clear to Malaysia University of Science and Technology economist Geoffrey Williams that there was a massive 12% increase in pre-election operational spending and a long list of handouts to various interest groups.

Williams told The Vibes that the extra expected revenue has almost all been allocated to extra spending and no real attempt has been made to cut the total amount of borrowing.

“There is therefore a development budget fully funded by debt. Some handouts are intriguing such as RM200, or RM17 per month, for e-wallets in e-Pemula and a new RM100 e-wallet, or RM8.30 per month for M40.

“This is clearly aimed at introducing targeted subsidies through the e-wallet scheme for specific products, at specific shops with a specific e-wallet. This is the worst way to handle subsidy targeting and will lead to massive transaction costs and corruption.”

The increases in Bantuan Keluarga Malaysia (BKM) are worth RM74 per family per month, RM18.50 for each person. Welfare aid programmes will give RM115 per month per person and for the hard-core poor, the RM1 billion is worth RM125 per month each, which will not cover their food costs. The RM1 billion welfare fund for the elderly is worth RM23 per month each.

Meanwhile, University of Tasmania Professor of Asian Studies James Chin tweeted: “Goodness – this is a populist election budget. Every group is getting something, women, B50 and M30 are getting the most. Various BKM $ along will account for 70-75% of the voters. $40b increase signal C19 recovery budget.

“B50 because of C19, we now have T20, M30, and B50. The budget targets the second half of M30, so, basically trying to reach at least 65% of the population directly. Smart but must do because of #GE15.”

Rakyat – main benefactors of the budget?

Deloitte’s Sim said for the youth especially, there are some goodies for individuals and businesses. This includes a reduction in personal income tax rates for the M40 group.

Budget 2023 proposes a 2% reduction in the personal income tax rates for individuals earning annual chargeable income between RM50,001 to RM100,000. “This is a welcome proposal and provides higher disposable income for these groups.

“The 2% reduction in tax rate results in tax savings of RM400 for those earning between RM50,001 and RM70,000, and RM1,000 for those earning between RM70,001 and RM100,000.

“Although the 2% cut results in lower tax collection, the impact should be minimal since the money saved would be contributed back to the economy in the form of higher consumption.”

Voluntary EPF contribution

Budget 2023 also proposed to increase voluntary EPF contribution from RM60,000 to RM100,000 a year.

“This will encourage Malaysians to build their retirement nest, especially for those who have made early withdrawals during the pandemic.

“To encourage voluntary EPF contribution, the scope for tax relief of RM3,000 for takaful or life insurance premiums will be expanded to include voluntary EPF contribution.

“In my view, this does not provide much incentive for Malaysians to go for voluntary EPF contribution as the RM3,000 tax relief is not adequate to cover payments for takaful or life insurance premiums and voluntary EPF contribution,” said Sim.

She also said that based on the Household Income and Basic Amenities Survey 2019, the M40 in Malaysia earn between RM4,851 and RM10,970 per month and represent 37.2% of the total household income in 2019.

“Taking the lowest income level for the M40 group at around RM58,000 per year, an 11% EPF contribution would come up to RM6,380. The median income for the M40 group is around RM7,093 per month and an 11% EPF contribution would come up to RM9,363 per year.

“Hence, increasing the current tax relief for contributions to approved provident funds (including EPF contribution) from RM4,000 to RM10,000 would be more meaningful.”

RM45 billion for entrepreneurs

For small and medium enterprises (SMEs), the RM45 billion in Semarak Niaga is a big allocation but is a mix of loans and conditional grants so the take-up might be low.

“The RM1 billion for SMEs gives RM1,000 to possibly 1 million of the 8.5 million businesses and 1.2 million SMEs registered with the Registrar of Companies, so 8.7 million will miss out,” said Williams.

He also highlighted the higher education budget, which has finally increased but only for public universities with the extra 4% barely covering inflation.

“Again, private universities are ignored. The discounts on the National Higher Education Fund Corporation (PTPTN) are a disaster and will reduce the collection rate at a time when it is close to the maximum allocation. This will have implications for PTPTN sustainability.”

Health budget far from what was aimed for

The health budget increase was very far from the RM30 billion that Health Minister Khairy Jamaluddin was aiming for and this reflected real concerns about how the ministry would be run in light of recent scandals.

Williams cited that most appeared to be allocated to builders and almost 20% will be funnelled to private health providers through the extra RM734 million in MySalam.

“This is not a large increase in operational expenditure in public health.”

Budget 2023 lacks structural reform

Despite the claims in the pre-budget statement we also do not see much by way of structural reform, freeing up the market, promoting competition or creating a vibrant innovative economy.

“There is also very little government efficiency or governance in the public sector. There is no independent oversight of these figures for example.

“Instead of taking advantage of possible savings due to a lower Covid-19 fund and efficiency gains, which could have been redistributed back to rakyat universally, the government has expanded its own spending and issued a list of low-impact projects for its own preferred groups.

“The extra RM38.7 billion in operational expenditure for example is worth RM1,300 for every single Malaysian or an extra RM100 per month. It could give the B60 RM2,100 per year or RM180 per month, and the B40 could get RM3,200 per year or RM270 per month – compared to RM74 per month under BKM.

“For the development budget, the increase from RM75.6 billion to RM95.1 billion is almost all accounted for by transport projects such as MRT3 and upgrading government buildings. The second at least will have no impact on promoting economic growth.”

Budget 2023 addresses bleak economy

On a macro level, Malaysian Institute of Economic Research senior fellow Shankaran Nambiar believes the good thing is that the Finance Ministry recognises that there will be a global slowdown that will affect the Malaysian economy.

“It also recognises that vast segments of the economy are being affected by reduced purchasing power and that the economy has not fully recovered.

“The net effect for 2023 is that an economy that is taking steps to recover will be hampered by external forces that are not terribly conducive for growth.

Shankaran cited three things that need to be done – maintaining the viability and welfare levels of households, particularly the more disadvantaged; encouraging a domestic demand-driven economy; and encouraging domestic production.

Boosting domestic demand?

“The budget does not seem to address all three concerns in a systematic manner. It does attempt to address questions of well-being, but perhaps not adequately.

“It does to some extent attempt to encourage local companies. I am not sure if the budget does sufficiently address the question of boosting domestic demand (since external demand will be softer),” Shankaran told The Vibes.

He also echoed Williams saying that large structural issues were thrown out of the window.

“The rising payments for the civil service will add further incentives. This is a segment of the labour force that I would not worry too much about. I would be more worried about the B40, casual workers and those in the informal sector.”

He also said although the fiscal deficit is being reduced, he doesn’t think it is being reduced enough nor is there much of an indication of a clear plan on how it will be reduced going forward.

“Overall, I think the Budget has correctly identified the problems and recognises the core groups that need to be targeted. It does some of the right things, but surely more can be done, and with a longer-term view in mind.”

Deloitte Malaysia executive director and global employer services leader Weina Ang said from the individual tax perspective, it is a broad-based budget that caters to a diversified rakyat.

“It will help to an extent overcome their challenges in meeting the current livelihood challenges,” Ang told The Vibes.

Recovery, reforms, sustainability and well-being of Keluarga Malaysia are the four broad themes surrounding Budget 2023. Hence focusing on measures to continue driving recovery, introduce reforms and care for Keluarga Malaysia.


The article was originally published at

bottom of page