Budget 2023: RM372.3b to support the economy

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The finance ministry says Budget 2023 will continue to provide substantial support to the economy with a total allocation of RM372.3 billion or 20.5% of the gross domestic product (GDP).

  • Top 3 recipients – Finance, education, health industries
  • Emoluments for civil servants remains the largest allocation under operating expenditure at 33.3%

Of the amount, RM272.3 billion or 73.1% will be allocated for operating expenditure (opex), and RM95 billion or 25.5% for development expenditure (DE).

Additionally, the remaining RM5 billion is for outstanding payments of the Covid-19 Fund commitments made in 2022 as stipulated in Section 8(1), Temporary Measures for Government Financing (Coronavirus Disease (Covid-19)) Act 2020.

“In terms of sectoral allocation, 37.2% (of Budget 2023) is allocated for programmes and projects under the social sector, followed by the economic (19.5%), security (9.9%), and general administration (5.5%) sectors, and 27.9% is allocated for charged expenditures and transfer payments.

Jabatan Penerangan Malaysia

“The top three recipients of Budget 2023 are the finance ministry (RM67.2 billion), education ministry (RM55.6 billion) and health ministry (RM36.1 billion), constituting 43.3% of total expenditure,” it said in its 2023 Fiscal Outlook and Federal Government Revenue Estimates report released today.

The finance ministry said the allocation for opex is estimated at RM272.3 billion or 15% of the GDP in 2023, which is slightly lower by 4.3% compared with Budget 2022 due to reduced allocation for subsidies and social assistance following the expected moderation in commodity prices and the gradual implementation of targeted subsidy mechanism.

Nevertheless, higher allocation is provided for emoluments, retirement charges, debt service charges (DSC) and grants to statutory bodies.

Emoluments for civil servants remain as the largest component, constituting 33.3% of the opex, the ministry said.

“The component is estimated to increase by 4.9% to RM90.8 billion, mainly due to provision of special annual salary increment for civil servants as well as absorption of contract officers to permanent positions, particularly in the health and education services,” it said.

Ageing nation

Meanwhile, retirement charges are estimated to increase by 1.4% to RM29.1 billion representing 10.7% of the total opex.

A total of RM21.9 billion or 75.3% of retirement charges comprise pension payments for about 958,700 pensioners and beneficiaries, while the remaining are mainly for gratuity payments and cash award in lieu of accumulated leave.

“As Malaysia is now an ageing nation based on the definition by the United Nations (UN), pension liabilities are expected to expand further. Therefore, the government is exploring options to efficiently manage future pension obligations.

“As stipulated in the Federal Constitution, the DSC is a charged item that must be prioritised before all other opex, and it is estimated to grow by 7% to RM46.1 billion in tandem with higher financing needs for DE and Covid-19 Fund,” it said.

Of the amount, 98.4% is allocated for the payment of coupons on domestic debts, particularly Malaysian Government Securities (MGS) and Malaysian Government Investment Issues (MGII), while the balance is for offshore loans.

The DSC ratio-to-revenue is estimated at 16.9%, compared to the 15% threshold in accordance with international best practices.

The finance ministry added that supplies and services, which represent 11.8% of the total opex, are expected to decline by 3.8% to RM32 billion, due to the government’s initiative to absorb contract personnel into the service, resulting in the shift of allocation from supplies and services to emoluments.

Allocation for grants to statutory bodies is expected to increase by 12.1% to RM15.1 billion.

Meanwhile, it also said that the health ministry will receive the highest allocation for supplies and services (35%), mainly for the procurement of medical supplies and professional services as well as for repairs and maintenance.

Subsidies and social assistance are projected to be at RM42 billion, mainly for fuel and agriculture-related subsidies; cash and welfare assistance; toll compensation; as well as education-related assistance.

Fuel subsidies are estimated to decline with the expectation of lower global crude oil price in 2023, averaging at US$90 per barrel, as well as in line with the gradual move towards targeted subsidies in ensuring economic efficiency and equitable distribution of resources.

Additionally, the government will continue to provide the Bantuan Keluarga Malaysia (BKM) assistance to ease the financial burden of the lower-income group.

Meanwhile, the implementation of DE programmes and projects is expected to gain momentum as the nation enters the third year of the 12th Malaysia Plan (12MP).

As such, a total of RM95 billion will be allocated in 2023 mainly to support economic growth and the post-Covid-19 recovery, where the allocations will be channeled to programmes and projects with high socio-economic impacts, in line with the UN’s Sustainable Development Goals (SDG).

The government will also continue to provide allocation to meet public-private partnership (PPP)/private financing initiative (PFI)-related commitments and financial obligations mainly to redeem the US$3 billion 1MDB’s maturing bond in March 2023.

Highlights of Budget 2023 include:

  • Income tax rate reduced by two percentage points – taxable income from RM50,001 to RM70,000 reduced from 13% to 11%, RM70,001 to RM100,000 from 21% to 19%
  • Tax relief of up to RM3,000 for preschool, kindergarten fees
  • RM100 e-wallet top-up for M40 with annual income of below RM100,000
  • Single senior citizens and single individuals will receive BKM aid of RM600 and RM350, respectively, depending on income limit
  • Households with a monthly income of less than RM2,500 with five or more children will get a BKM one-off aid of RM2,500
  • For households making between RM2,500 and RM5,000 a month, BKM aid will be given between RM500 and RM1,250 depending on the number of children