Fiscal tightening likely to take centrestage

PETALING JAYA: Budget 2024, which will be tabled on Oct 13, will likely pay strong emphasis on fiscal tightening with the aim to further consolidate the high fiscal deficit level, according to economists.

They opined that there could be higher tax collections which would drive government revenue and improve the fiscal deficit level, although the much talked about goods and services tax (GST) may resurface after the Budget 2024 announcement at a later period.

Both operating expenditure and development expenditure are expected to take a cut to improve the fiscal deficit-to-gross domestic product (GDP) ratio.

A fiscal deficit is a shortfall in a government’s revenue or income compared with its spending. The government’s fiscal deficit target for this year is at 5% of GDP.

Maybank Investment Bank (Maybank IB) Research said the Budget 2024 deficit is likely to be at 4% to 4.3% of GDP.

CGS-CIMB Research said the government may target a fiscal deficit of 4.3% of GDP next year versus 5% this year.

“With efforts to attract investments, socioeconomic restructuring and the need for fiscal resilience, we believe there is a strong likelihood the budget will focus on fiscal tightening with an emphasis on funds reprioritised to households and sectors most needy.

“We will also likely see the Madani framework, involving several announcements recently such as the New Industrial Master Plan 2030 and the 12th Malaysia Plan midterm review, being implemented into actionable policies.

“With the state elections in the rear view mirror, we think the political risk is significantly reduced thus allowing the government to focus on economic matters.

“We project fiscal revenue to grow modestly by 1.5% year-on-year (y-o-y) in 2024 (2023: 1.4%) on the back of slightly higher tax collection, given better 2024 economic growth of 4.6% y-o-y (2023: 4%),” the research house noted.

The theme most anticipated by the market is the possible comeback of the GST, which is likely to appear in the budget speech in some form or another.

“We believe chances are high that the GST (or another version of it) could be announced for implementation in 2025 or later, allowing for feedback from the general public and ensuring businesses are ready,” the research house said.

Overall, CGS-CIMB Research said the key points in the upcoming budget speech included the targeted subsidy mechanism, especially for RON95, and the capital gains tax on unlisted shares.