KUALA LUMPUR (Feb 24): The revised Budget 2023 strikes a balance between the need to support the economy and the commitment on fiscal consolidation, said OCBC Bank.

Chief economist of OCBC Bank Selena Ling in a statement on Friday (Feb 24) said the budget tabled was in line with market and OCBC’s expectation, with a resolve to see the budget deficit reduced to 5% from 5.6% of GDP in 2022.

“The improvement is to be achieved via a higher nominal GDP (a bigger-sized economy) while the fiscal deficit amount is planned to be a tad smaller than the 2022 outcome,” said Ling.

She added the spending package for 2023 is mildly smaller than the outcome for 2022 but remains generous which is expected due to the expiry of the Covid-19 Fund, reduction of spending wastages and shift towards targeted subsidy framework.

“The budget remains supportive of economic growth both on a short-term and long-term horizon. Allocation on development expenditure is planned at RM97 billion, a significant increase from the previous year. This is expected to enhance Malaysia’s long-term growth potential via investments in infrastructure, health care facilities and educational institutions under 12MP,” said Ling.

She added that Malaysia will expand the capacity of Penang and Subang airports, which is timely given the increasing international visitor arrivals, especially with China’s reopening.

She expects fiscal revenue to fall slightly alongside slower economic growth and expected moderation of commodity prices.

The government forecast 2023 GDP growth at 4.5%, a decline from the impressive 8.7% in 2022.

“OCBC’s 2023 GDP growth forecast for the Malaysian economy is 4.4%, partly due to the high base last year as well as the global growth slowdown, especially in key markets,” she added.

On taxation, Ling added the policies to broaden the tax base and streamline tax reliefs to mitigate the impact on fiscal revenue, will be carried out in a calibrated manner.

“The government recognises the challenge of rising cost of living particularly for vulnerable groups,” said Ling.

She added other notable budget announcements include the shift to a more progressive tax system with the personal income tax cut by 2% for those earning a taxable income of MYR35,000-100,000 to benefit 2.4 million taxpayers, whereas those earning MYR100,000- RM1 million will see higher tax rate of 0.5- 2% affecting fewer than 150,000 taxpayers.

In addition, Malaysia will introduce taxes for luxury goods this year, plan for excise duty on liquids and gels containing nicotine, as well as study imposing a capital gains tax. Malaysia will also cut the corporate income tax rate for smaller firms from 17% to 15%.

Get our comprehensive coverage of the revised Budget 2023 here.