Enhancing food security, reducing govt subsidies key issues for Malaysia’s 2024 budget

The government is studying how to implement targeted subsidies. Ideas include giving special petrol discount cards to the bottom 40 per cent of income earners and the next-tier middle-income group.

Azril Annuar

Azril Annuar

The Straits Times


In February this year, Prime Minister Anwar Ibrahim unveiled an expansionary 2023 budget, totalling RM388.1 billion. PHOTO: REUTERS/ THE STRAITS TIMES

October 13, 2023

SINGAPORE – Nearly a year into his premiership, Prime Minister Anwar Ibrahim has a long to-do list as he presents Malaysia’s 2024 budget on Friday, with experts suggesting that he needs to introduce fiscal reforms to reduce ballooning petrol subsidies.

Inflation and food security issues have also made big headlines in recent months, including current concerns over a rice shortage, and he must address the problem of policies that result in low wages and favour business owners over workers, say economists and analysts.

To be sure, Datuk Seri Anwar, who is also the Finance Minister, has not been idle. He has just returned from the United Arab Emirates, the United States and China, among other places, with announcements on RM217 billion (S$63 billion) worth of promised investments.

The government recently launched the New Industrial Master Plan, which he said would transform the industrial sector by 2030 with estimated investments of RM95 billion, mostly by the private sector.

But these impressive figures aside, he has to make an immediate impact on the daily economic struggles of the average Malaysian, especially those in the bottom 40 per cent of income earners (B40) and the next-tier middle-income group (M40).

The good news is that Mr Anwar has deep experience in economic matters, as he was finance minister between 1991 and 1998. In February 2023, he unveiled an expansionary 2023 budget, totalling RM388.1 billion, an increase of RM15.8 billion, the largest in the country’s history.

The 2023 budget was retabled in February by him as the annual spending plan – unveiled by the previous government led by then Prime Minister Ismail Sabri Yaakob – had not been approved by Parliament before it was dissolved for the election on Nov 19, 2022.

Since February, though, the economic outlook has gradually worsened. Earlier in October, the World Bank revised Malaysia’s gross domestic product growth from 4.3 per cent to 3.9 per cent, the lowest in nearly two years, on the back of sliding exports coupled with rising global concerns over inflation and food security amid wars in Ukraine and the Middle East.

“There is a need to manage the cost of living, as inflation continues to affect the B40 and even the M40. Budget 2024 will be the platform for Mr Anwar to address these critical issues, and significant policy measures have to be put on the table now,” said economist Muhammad Saifuddin Sapuan at Kenanga Investment Bank’s research arm.

Last week, the government announced intervention measures to address the country’s rice shortage and the price hike of imported rice. These include increasing rice distribution by the Federal Agricultural Marketing Authority to rural areas and sundry shops, with Kuala Lumpur bearing the transport costs and a subsidy of RM950 per tonne for imported rice in East Malaysia.

Another major issue that has been discussed in government circles is how to dish out more aid directly to those who need it most.

In his expanded 2023 budget, Mr Anwar announced RM8 billion cash handouts under Sumbangan Tunai Rahmah (Rahmah Cash Aid), benefiting 8.7 million people – the poorest got up to RM3,100 each, rice farmers got cash aid of RM600, and RM400 million in e-credit was given in total to two million people aged 18 to 20.

But economists and analysts say the elephant in the room is the need for Mr Anwar to introduce fiscal reforms to arrest the ever-rising cost of petrol subsidies that cost the government RM45 billion in 2022.

Unlike in Singapore where vehicle users pay the full market price at petrol pumps, the Malaysian government subsidises prices for petrol, diesel and liquified petroleum gas. This has meant that the poor man with a small motorcycle and the rich man with a luxury car both enjoy the subsidies. In fact, the petrol-guzzling big car gains more.

The government is studying how to implement targeted subsidies. Ideas include giving special petrol discount cards to the B40 and M40 groups. Mr Anwar said the details of the system will be announced on Friday.

Mr Asrul Hadi Abdullah Sani, deputy managing director at advisory firm BowerGroupAsia, said Mr Anwar’s priority must be restructuring “blanket subsidies in favour of targeted subsidies”. This would channel funds to different sectors and income groups, saving billions of dollars and thus easing fiscal pressure.

To improve the country’s finances, the Anwar administration also has to look at ways to boost government revenues.

In September, Economy Minister Rafizi Ramli said the government may reconsider implementing the unpopular goods and services tax (GST), but he backtracked two days later after public backlash.

Singapore Institute of International Affairs senior fellow Oh Ei Sun said more taxes on luxury and expensive goods and windfall taxes on soaring profits can be enacted to broaden Malaysia’s revenue sources. For instance, glove-maker Top Glove made a tremendous profit of RM7.87 billion during the height of the Covid-19 pandemic.

Mr Oh added that if the government decides to implement the GST, it should start with a rate of 3 per cent to 4 per cent, with a gradual increase over the years. The government of former premier Najib Razak was ousted from office in the 2018 national polls due to the scandal over state fund 1MDB and for going ahead with a 6 per cent GST.

BowerGroupAsia’s Mr Asrul said that with the slowing economy, Mr Anwar “must introduce GST sooner rather than later, reduce subsidies, reduce spending and widen the tax base, but also continue to provide handouts to lower-income households”.

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