Election budget in the offing but with a tighter belt round the waist

WHILE expectations for Budget 2023 to be an “election budget” is rife, the goody bag could be constrained by the lack of fiscal leeway given record high subsidies (estimated at RM77.7 bil for 2022) alongside risks of global economic slowdown.

On the bright side, Hong Leong Investment Bank (HLIB) Research expects fiscal deficit to consolidate further to -5.0% to -5.3% of gross domestic product (GDP) (2022 target: -6.0%).

“On government revenue, we expect this to increase 2.5% in 2023 with a full re-opened year although new significant taxes – notably goods and sales tax (GST) and Cukai Makmur 2.0 (windfall tax) – are unlikely given the impending polls,” projected head of research Jeremy Goh and economist Felicia Ling in a 4Q 2022 strategy note.

For spending, higher Bantuan Keluarga Malaysia (BKM) cash handouts to the B40 group – topping 2022’s RM8.2 bil allocation – is a plausible move, according to HLIB Research.

“While further subsidy rationalisation measures are likely with fuel is a touchy issue which we believe will only materialise post-GE15 although some ‘signalling’ could happen during the (tabling of) Budget 2023,” envisages the research house.

“Expenditure savings should also stem from lower COVID-19 spending which we expect an allocation of RM11 bil (2021/2022: RM38 bil/RM23 bil). To support economic recovery, we think the Government will allocate a higher development expenditure (DE) sum of RM80-RM85 bil (2022: RM75.6 bil).”

From a market perspective, HLIB Research expects Budget 2023 to be relatively muted with “no major wows or shocks”.

“Broadly, higher cash handouts would be positive for the consumer sector. While construction (traditionally a budget favourite) should benefit from higher DE (development expenditure) with the unveiling of new mega projects seemingly unlikely,” reckoned the research house.

“(The) focus is likely to be on small to mid-sized basic infra jobs. Initiatives for the property sector will probably be targeted to the B40 and M40 buyer group – eg tax relief for first time homebuyers – while not ruling out another HOC (Home Ownership Campaign).”

Elsewhere, HLIB Research foresees further expansion/extensions on the benefits accorded to electric vehicle (EV) car buyers while for the sin sector, tax/excise hike can be averted for casinos (last hike in 2019 with the gambling industry still recovering from the COVID-19 pandemic),.

“NFOs (number forecast operators) and the tobacco industry still face a sizable illegal/illicit market. Though unlikely, a hit on the brewers can’t be discounted entirely (last alcohol excise hike in 2016) given their recovery back to pre-pandemic levels,” projected the research house.

“On the ESG (environmental, social and governance) front, we may see (i) details on carbon tax (taking cue from the impending voluntary carbon market [VCM] launch); (ii) incentives for more renewable energy (RE) capacity; and (iii) push for higher women board representation.” – Sept 30, 2022

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