KUALA LUMPUR (Reuters) -Malaysia on Friday unveiled a scaled-back spending plan for the year and plans to tax the wealthy as Prime Minister Anwar Ibrahim focuses on narrowing the budget deficit.
Three months into the job, Anwar is having to balance fiscal prudence with demands to address higher costs of living and a slowdown in Malaysia’s export-driven economy.
But Anwar, who is also finance minister, vowed to maintain subsidies and other government support for lower-income groups, and broaden the revenue base through taxes targeting luxury goods and capital gains.
The fiscal deficit is expected to narrow to 5% of gross domestic product (GDP) this year from 5.6% last year, his government said in a report released alongside the budget presentation in parliament on Friday. The forecast is more ambitious than his predecessor’s earlier target of 5.5%.
Anwar’s government is tabling its first budget since being elected to power in November. His predecessor had presented a budget plan for 2023 in October, but it was not passed in parliament due to the election.
In a speech in parliament, Anwar said Malaysia will introduce a luxury goods tax this year and consider implementing a capital gains tax.
He ruled out a goods and services tax, saying it was not the right time.
“Given that the income and wealth of the country is concentrated among the wealthy and elites, it is appropriate that the distribution of national income is focused on low and middle income groups,” Anwar said.
He asked for the wealthy to take “joint responsibility”.
Anwar, in the report, said he will launch measures to strengthen the governance of public finances, and gradually reduce Malaysia’s debt.
“Various initiatives have been identified to address issues related to public finances, including exploring new sources of sustainable revenue and minimising leakages,” he said.
The prime minister warned that 2023 will be a challenging year for the economy, largely due to the global slowdown and prolonged geopolitical risks.
He forecast growth at about 4.5% in 2023 compared to 8.7% last year — the highest in 22 years. Malaysia had earlier forecast 2023 growth at 4%-5%.
Export growth is expected to moderate to 1.6% this year, down sharply from 25% last year. The current account surplus is seen at 55.2 billion ringgit.
Government expenditure this year is expected to total 386.1 billion ringgit ($87.11 billion), 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 the government a dividend of 40 billion ringgit, higher than the previous government’s projection of 35 billion ringgit.
Federal government debt is seen at around 62% of gross domestic product in 2023, up from 60.4% last year, according to the report.
The government said it was committed to gradually reducing its debt to pre-pandemic levels, when the debt ceiling was at 55%. Malaysia’s borrowings increased during the COVID-19 pandemic as it launched a massive stimulus program to support the economy.
($1 = 4.4325 ringgit)
(Reporting by A. Ananthalakshmi, Mei Mei Chu and Rozanna Latiff; Editing by Kim Coghill)