According to Maybank Investment Bank, the Budget 2023 will be less expansionary this time due to a reduction in the budget deficit to 5.0% of GDP from 6.0% to 6.4% of GDP in 2020-2022E.
"At the outset, we expect Budget 2023 to be “less expansionary” in terms of budget deficit to GDP ratio i.e. down to 5.0% vs the 6.0%-6.4% range in 2020- 2022E.
"This is in line with the aims of Medium-Term Fiscal Projection (2022-2004) and the 12th Malaysia Plan (12MP, 2021-2025) to bring down Federal Government’s deficit spending to 3.5% of GDP by 2025 (Fig 7). To also note, the value of Federal Government deficit spending is targeted to drop to MYR68.5b 2025 vs the MYR88b-MYR99b range in 2020-2022E," it says.
The lower 2023 budget deficit to GDP mainly reflects two key factors on the expenditure side of budget.
First is the expiry of COVID-19 Fund that accounts for around one-third of budget deficits in 2020-2022E.
Second is the lower fuel subsidy, hence slower growth in operating expenditure (2023E: +4.0%; 2022E: +19.0%), reflecting 1) the expected transition to “targeted” - from “blanket” - fuel subsidy and 2) our expectation of Budget 2023 forecasting lower average crude oil price of USD80-90/bbl next year vs USD100-120/bbl this year.
"We expect a third consecutive year of double-digit growth in gross development spending (GDE, 2023E: +21.7%; 2022E: +17.7%) given the fiscal space from COVID-19 Fund expiry and implementation of “targeted” fuel subsidy.
"This is also in line with the outlook of peak GDE in 2023-2024, based on 12th Malaysia Plan’s (12MP, 2021-2025) MYR400b allocation.
The 2023 GDE will focus on:
1. digital infrastructure (namely 5G network capex);
2. progress/completion of ongoing - and rollout of new (e.g. KVMRT3) - major physical infrastructure projects;
3. bridge the inter-state gaps in socio-economic and infrastructure developments via higher share of GDE allocations to less developed states;
4. support human capital development to address labour market supply-demand mismatch and talent issues; and 5) improve the essential public services like education and healthcare."
Maybank says on taxes, Malaysia may adopt the 15% Global Tax on MNCs and thus the Qualified Domestic Minimum Top-Up Tax (QDMTT).
"We may see Malaysia adopting the 15% Global Tax on MNCs and thus the Qualified Domestic Minimum Top-Up Tax (QDMTT) where if an MNC’s profit is taxed below the 15% global tax rate, a top-up tax will be imposed. Major tax wildcards in Budget 2023 are GST comeback and “Cukai Makmur” extension.
"We do not expect GST implementation in 2023 but foresee Budget 2023 “messaging” on the need for GST in 2024 (i.e. after the next general election). And our sense is the market sees risk of “Cukai Makmur” extension into 2023 despite Ministry of Finance (MoF) stating it is a one-off tax measure in Budget 2022."
It also says Budget 2023 will remain “SME-friendly” with potential measures such as raising taxable income threshold for the 17% SMEs income tax rate from MYR600,000 to at least MYR1m; and more allocations for the various SME funds and soft loans for technology adoption (IR4.0, automation, digitalisation); productivity and efficiency enhancements; integration into global supply chain; food security; and sustainability/ESG transition.
The following sectors may benefit:
Consumer staples (e.g. recently announced civil service salary increment and special payment for 2023.
Expected enhancements to existing cash handout and financial assistance programmes).
Food (i.e. domestic “food security”). Affordable housing and tourism (e.g. extension of personal income tax relief for domestic tourism and entertainment duty exemption for admission fees to entertainment venues such as theme parks, stage performances, sport events and competitions in the Federal Territories).
There might be a specific Budget 2023 measure to address Ringgit situation i.e. official directive for Government Linked Companies (GLCs) and Government-Linked Investment Companies (GLICs) to repatriate overseas profits and investment income, and “go slow” on their overseas direct and portfolio investments.