This article first appeared in The Edge Malaysia Weekly on June 6, 2022 - June 12, 2022

GOVERNMENT expenditure is expected to increase significantly this year due to unanticipated subsidies for fuel, chicken and eggs, cooking oil as well as flood relief, says the Ministry of Finance (MoF) in its 2023 pre-budget statement last Friday.

“Assuming the current global commodity prices level remains and the government maintains current subsidised prices, there will be potentially a RM30 billion increase in subsidies expenditure,” the ministry says.

MoF says the government is currently planning to enhance subsidies through a more targeted approach to improve spending efficiency and minimise leakages, while ensuring the subsidies reach target groups and achieve the intended objectives.

In the first four months this year, the government has spent RM116.9 billion, or 35.2% of the total expenditure of RM332.1 billion allocated for 2022, which includes the Covid-19 Fund.

Of the RM116.9 billion, some RM87.5 billion was used for operating expenditure, including spending for the education sub-sector and subsidies, especially for fuel; RM23.2 billion for development expenditure; and RM6.2 billion for the Covid-19 Fund. The largest share of the Covid-19 Fund was used to fund the cash aid scheme “Bantuan Keluarga Malaysia”, which benefited around 9.6 million recipients.

Although expenditure is projected to be “significantly” higher this year, no thanks to unanticipated subsidies, the ministry says the government is on track to meet its 2022 fiscal deficit target of 6% to gross domestic product (GDP).

“Overall, the better revenue performance, coupled with rigorous expenditure management and sustained growth trajectory is expected to mitigate the risk of fiscal slippage and keep the deficit target on track at 6% of GDP,” it adds.

MoF says the government’s tax revenue collection is expected to be better than the initial Budget 2022 estimate, thanks to improved economic recovery, coupled with higher business and leisure activities.

Revenue collection up to April this year has already beat the government’s target, with direct tax collection amounting to RM45.6 billion or 35.8% of the target, while indirect tax collection was RM17.3 billion or 39.4% of the target.

The estimated target for tax revenue collection under Budget 2022 is RM171.4 billion or 10.5% of GDP. This includes collection of RM127.3 billion direct taxes and RM44.1 billion indirect taxes.

At end-April 2022, total government debt stood at RM1.015 trillion or 62% of GDP with the statutory debt at RM958.5 billion or 58.5% of GDP, still below the statutory debt limit of 65% of GDP.

“With the yield of government papers rising this may impact the debt servicing capacity of the government, however this risk will be cushioned by better revenue prospects,” MoF says.

This is the second iteration of the government’s initiative in issuing a pre-budget statement, which is in accordance with its commitment to improve transparency and governance of the budgetary process.

MoF says Budget 2023, which is slated to be tabled in parliament on Oct 28, will be prepared to reinforce Malaysia’s recovery both in terms of returning economic performance and the people’s lifestyle back to pre-pandemic norms following the reopening of most economic sectors at the end of 2021.

Themed “Strengthening Recovery, Facilitating Reforms Towards Sustainable Socio-Economic Resilience of Keluarga Malaysia”, the upcoming national budget will be formulated based on three priority areas: first, to reinforce the momentum of economic recovery by ensuring it is not just a recovery in GDP terms but also a job and income recovery for Malaysians and businesses.

The second priority is to strengthen economic resilience against future shocks through reforms towards better social protection, especially to vulnerable segments of society, a stronger public health system and more sustainable fiscal position to provide buffers against future shocks.

MoF’s final priority in Budget 2023 is to implement comprehensive reforms in the economic and social aspects for businesses, priority sectors and the nation to emerge more competitive globally while advancing its sustainable development agenda.

“Essentially, Budget 2023 will continue to support growth and focus on reforms to elevate the rakyat’s well-being, income and social protection, to improve the competitiveness of Malaysian businesses and move up the value chain, in addition to strengthen the nation’s resilience against future shocks and consolidate the government’s fiscal position,” it says.

To ensure a more balanced development nationwide, MoF says the government aims to attract high quality investment to all economic corridors.

“Therefore, emphasis will be given on improving business ecosystems, creating more jobs, and improving infrastructure in less developed regions or states, namely Sabah, Sarawak, Kelantan, Terengganu, Kedah and Perlis.”

MoF adds that the ministries of education and health will continue to be recipients of the largest operating expenditure in Budget 2023, reflecting the importance given to universal access to quality education and healthcare, with increased emphasis on educating talent to be future ready and focusing on preventative healthcare in the context of non-communicable diseases.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.