Bait Al-Amanah economist Benedict Weerasena said the projection appears optimistic in light of recent events abroad.
“Malaysia is an open trading economy, which makes us vulnerable to external economic and geopolitical shocks. So, it is quite tough to form a strong projection due to this unpredictable environment,” he told FMT Business.
“However, I would say the (Budget 2024) shows that we have strong fundamentals. Hence, this may serve as a platform for us to achieve solid growth, at least 4% next year,” he added.
When tabling the budget last Friday, Prime Minister Anwar Ibrahim said Malaysia’s economy is expected to grow between 4% and 5% next year.
However, he said the government feels confident that the local economy can grow almost 5% if the Madani economy reforms are successfully implemented.
On Oct 2, the World Bank projected that Malaysia’s economy will see a 4.3% growth on the back of robust private consumption next year. It also revised this year’s growth rate downwards to 3.9% from 4.3%.
Malaysian Institute of Economic Research senior research fellow Shankaran Nambiar also expressed doubts about the likelihood of achieving a 5% growth rate next year.
“I certainly do hope the government’s aspiration of achieving a growth rate of 4% to 5% next year will be realised. I am not sure if I share the same optimism. At least in the global scenario, I am concerned about the downside risks,” said the economist.
PwC Malaysia director of economics and policy Yee Ming Hwa said that the 5% growth target is achievable depending on external conditions.
“Of course, there’s the geopolitical factor, particularly the recent Israel-Palestine conflict. It’s still too early for analysts to assess how big an impact it will have on the global economy, including Malaysia’s,” he said.
Another factor that will influence domestic growth is the speed at which global trade recovers, which itself is dependent on how fast the Chinese economy heals.
“We have to see how fast external demand picks up. For now, the Chinese economy is still not ticking up as quickly as expected,” Yee added.
From January to August 2023, Malaysia’s exports shrank by 7.6% to RM935.22 billion, while imports slipped by 8.6% to RM782.29 billion. Trade dropped by 8.1% to RM1.718 trillion compared with the same period last year.
Missed opportunities
While acknowledging that Budget 2024 has some positive measures, Weerasena said that it lacked several much-needed major overhauls.
“It was a missed opportunity to raise revenue and widen the tax base. I’m not sure if raising the service tax rate from 6% to 8% will generate much revenue,” he said.
The sales and service tax (SST), which cumulatively amounts to 16% currently, is estimated to bring in RM34.2 billion this year, equivalent to 11.3% of the government’s total revenue.
Prior to the budget’s tabling, some economists have suggested the reintroduction of the goods and services tax (GST), which has a wider tax base and is supposedly more effective and transparent compared with the SST.
Nambiar echoed Weerasena’s viewpoint.
“The finance minister must have been in a quandary on how to raise tax revenue. Clearly, he wanted to avoid the GST at all costs. Political expediency may have had a part to play,” he said.
“The decision to increase the SST seems to have been the best possible option. However, it doesn’t have redeeming features, except that it won’t apply to a few categories, such as food. It appears that the 8% SST might add to consumer burden and raise the cost of business for SMEs,” he added.
Nambiar also expressed doubt that the proposed capital gains tax (CGT) and the high-value goods tax will significantly improve public finances.
“The capital gains tax and high-value goods tax are not likely to raise much revenue. It is symbolic of the desire to address distributional concerns,” he said.
However, Weerasena applauded the government for its proposal to implement the CGT, which he said is much-delayed.
“I think the CGT is timely and a reflection of the Madani government’s commitment to progressive taxation. CGT usually targets higher income groups and can help to channel resources to lower income households,” he added.