New Budget 2023 An Astute Document

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The recently re-tabled 2023 budget by Prime Minister Anwar Ibrahim, who is also the finance minister, was an astute document which emphasised continuity, reassured markets, and introduced small positive changes to signal future policy direction.
Increasing the fiscal space
Anwar and his team at the Finance Ministry very astutely adjusted the expected revenue and projected operating expenditure upwards as compared to the previous budget announced by former finance minister Tengku Zafrul Tengku Abdul Aziz, now international trade and industry minister.
The higher-than-expected gross domestic product (GDP) growth of 8.7 percent for 2022 (compared to an initial projection of between 6.5 to 7 percent) allowed the team at Treasury to increase the operating expenditure from RM272.3 billion (under Zafrul’s budget) to RM289.1 billion (under Anwar’s budget) and still announce a decrease in the budget deficit-to-GDP ratio from -5.5 percent to -5 percent.
The higher-than-expected GDP growth in 2022 also resulted in an increase in the projected revenue via direct and indirect taxes from RM285.2 billion to RM294.4 billion in 2023 and a projected increase in government revenue from RM272.6 billion to RM291.5 billion.
GDP (at current prices) or nominal GDP for 2022 was initially projected to be at RM1.71 trillion when Zafrul tabled the 2023 budget in October 2022 but has since been revised upwards to RM1.79 trillion, representing an increase of RM75.8 billion or a 4.4 percent increase.
Nominal GDP is expected to increase to RM1.89 trillion at the end of 2023 compared to the projection of RM1.79 trillion when the 2023 budget was tabled in October last year. (Refer to Table 1 below)
The fiscal space that was created, especially in operating expenditure - amounting to an increase of RM16.8 billion or an increase of 6.2 percent compared to the 2023 budget tabled last year - allowed Anwar to target more funding in specific areas, especially to help the B40 community.
The total amount spent on subsidies, fiscal transfers, and incentives (which includes price support for essential items) increased from RM55 billion to RM64 billion for 2023.
This increase was not so large as to “spook the markets” but was significant enough to signal Anwar’s intention on helping the B40 community adjust to the increase in the cost of living that has taken place post Covid-19.
For example, the direct fiscal transfers to low- and middle-income families through the Sumbangan Tunai Rumah or the Household Cash Contribution increased from RM7.8 billion to RM8 billion.
Although total development expenditure was only increased by RM2 billion compared to the 2023 budget tabled last year, there were some useful tweaks in the allocation of development funding that can lay a good foundation for future expansion when the economic and fiscal conditions in the country improve.
For example, the funding for high-impact projects under International Trade and Industry Ministry was increased from RM167 million to RM195 million.
Although the increase of RM28 million is not huge, it does signal to the industry that the ministry is serious in its advocacy to work with the industry to fund selected projects that have high multiplier effects on the economy.
The development expenditure allocation for sports development at the state and community level was also increased by RM70 million. An additional RM50 million was allocated for the much-needed maintenance of sporting facilities and sports complexes at the state level and an additional RM20 million was allocated for sports development at the community level.
Under the Education Ministry, an additional RM250 million of development expenditure was allocated for educational support infrastructure.
Continuation of green economy initiatives
Although there were no new green economy initiatives announced, it was encouraging to see the continuation of previously announced policies including the extension of the Green Investment Tax Allowance and the Green Income Tax Exemption until Dec 31, 2025.
The Green Technology Financing Scheme guarantee of RM3 billion will also be extended until 2025.
This continuity provides an important signal to the industry - for investments in Battery Energy Storage Systems from solar energy, for example - that the government is committed to expanding the green economy.
I am fairly confident that the ministers at the International Trade and Industry Ministry and the newly empowered Natural Resources, Energy and Climate Change Ministry will work together effectively to drive green initiatives moving forward, especially in the electric vehicle ecosystem, renewable energy, and industry related initiatives in the ESG space.
More reforms, especially under MOF Inc
The one area which I wanted to see more clarity on, but which was left out of this budget, was reforms involving Minister of Finance Incorporated companies.
Not many people are aware of this but almost one-quarter of the development expenditure is allocated to capital injections by the Finance Ministry amounting to RM23 billion, mostly to MOF Inc companies and other government agencies.
For example, the contingent liability for Prasarana had increased to RM40 billion at the end of 2021.
Most of Prasarana’s revenue is spent on debt servicing associated with the building of the LRT and the acquisition of buses and other assets, which means that it requires significant financial assistance from the Finance Ministry to continue to operate.
PTPTN’s contingent liabilities stood at RM40 billion at the end of 2021. How long will the unsustainable practice of offering student loans at below-market interest rates continue, especially when PTPTN has to pay market interest rates for its funds and is asked to absorb the many discounts which are offered for early repayment of loans?
Perhaps these and other larger structural challenges and institutional reforms will be addressed by the prime minister and his cabinet in the tabling of the 2024 budget.
In the meantime, I am cautiously optimistic that more policy announcements will be forthcoming after this government has crossed the hurdle of re-tabling the 2023 budget.
ONG KIAN MING is the philosophy, politics, and economics programme director at Taylors University. He is also a former Bangi MP. 
The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.

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