Maybank IB expects ‘less expansionary’ Budget 2023

KUALA LUMPUR: Maybank Investment Bank Bhd (Maybank IB) expects Malaysia’s 2023 budget, to be tabled on October 7, to be “less expansionary” with budget deficit down to five per cent of Gross Domestic Product (GDP).

In a research note yesterday, it said the budget deficit had been between six to 6.4 per cent of GDP from 2020 to 2022, triggering the kickstart of the medium-term fiscal consolidation that aimed to bring down the budget deficit to 3.5 per cent of GDP by 2025.

The investment bank said the lower 2023 budget deficit mainly reflecting two key factors on the expenditure side including the expiry of the Covid-19 Fund, which accounted for around one-third of budget deficits from 2020 to 2022.

It said another factor is the lower fuel subsidy, hence, slower growth of four per cent in operating expenditure for 2023 versus 19 per cent growth in 2022 is reflecting the expected transition to “targeted” from “blanket” fuel subsidy.

“Our expectation of Budget 2023 forecasting lower average crude oil price of US$80 to US$90 a barrel (bbl) next year versus US$100 to US$120/bbl this year,” it said.

The investment bank said it also expected a third consecutive year of double-digit growth in gross development spending (GDE), estimated at 21.7 per cent against 17.7 per cent in 2022, given the fiscal space from Covid-19 Fund expiry and implementation of “targeted” fuel subsidy.

It said this is also in line with the outlook of peak GDE in 2023 to 2024 based on the 12th Malaysia Plan’s RM400 billion allocation.

“We expect 2023 GDE to focus on digital infrastructure namely 5G network, completion of ongoing and rollout of the Klang Valley Mass Rapid Transit 3 (MRT3) to bridge the interstate gaps in socio-economic and infrastructure developments, support human capital development and improve the essential public services like education and healthcare,” it said.

On taxes, Maybank IB said Malaysia might be adopting the 15 per cent Global Tax on multinational companies (MNCs) and thus the Qualified Domestic Minimum Top-Up Tax (QDMTT), which would be imposing a topup tax if an MNC’s profit is taxed below the 15 per cent global tax rate.

“We do not expect the goods and services tax (GST) implementation in 2023 but foresee Budget 2023 ‘messaging’ on the need for GST in 2024 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 said.

The investment bank said it also anticipated the Budget 2023 to remain small and medium enterprises (SME) friendly with potential measures such as raising the taxable income threshold for the 17 per cent SMEs income tax rate from RM600,000 to at least RM1 million. It said more allocations are expected to be given for the various SME funds and soft loans for technology adoption, productivity and efficiency enhancements, integration into the global supply chain, food security and sustainability or environmental, social and governance (ESG) transition.

Maybank IB said among the sectors or industries, Budget 2023 would potentially benefit consumer staples, food, affordable housing and tourism.

It added there might be a specific budget measure to address the ringgit situation such as an 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.