Malaysia Unveils 2024 Budget With Subsidy Cuts and New Taxes On Luxury Goods

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KUALA LUMPUR, Malaysia — In his first budget since taking office last November, Malaysian Prime Minister Anwar Ibrahim announced on Friday that the government will cut subsidies and introduce new taxes on luxury items as part of wider economic reforms aimed at tightening finances and fixing imbalances.

Delivering the 2024 federal budget speech in Parliament, Anwar stated that the MYR 393.8 billion budget is crafted to assist Malaysians in coping with the rising cost of living amid slowing global growth. The prime minister, who also holds the finance portfolio, said he expects the Malaysian economy to grow by just 4% this year but rebound to nearly 5% in 2024.

Subsidy Cuts To Begin In 2024, Savings To Fund Cash Aid and Higher Wages

Noting that Malaysia’s subsidies and social assistance hit MYR 81 billion this year due to soaring commodity prices, Anwar said the current subsidy system unfairly benefits the wealthy and even foreigners.

“So starting next year, the subsidy restructuring will be implemented in phases,” Anwar told lawmakers. “We hope that by plugging the subsidy leakage, we can pass on the savings to the people with increased cash aid and higher wages.”

For 2024, the budget has allocated MYR 52.8 billion for subsidies and social welfare, nearly MYR 30 billion less than 2022’s record spending. Anwar stated the reforms will ensure help reaches only the needy citizens.

New Taxes on Luxury Goods and Capital Gains To Broaden Revenue

To expand its revenue base, the Malaysian government will introduce a 5–10% tax on luxury items like jewelry and watches starting in 2024. Tourists will be exempted from the duty.

Anwar also announced that a 10% capital gains tax will also take effect next year. “The current services tax will be raised from 6% to 8%, though this will exclude sectors such as food, beverages and telecommunications,” he added.

Authorities project the new taxes and subsidy savings will help narrow its fiscal deficit to 4.3% of GDP in 2024, versus around 5% for 2022.

Budget Crafted To Aid Post-Pandemic Recovery Amid Global Slowdown

Presenting the first budget under his administration, Anwar emphasized that the MYR 393.8 billion spending plan is designed to nurse the Malaysian economy back to health after COVID-19 disruptions amid flagging global growth.

“Economic growth is likely to slip to 4% this year but could reach nearly 5% in 2024,” he remarked. The prime minister stated the budget aims to fix the nation’s economic imbalances and relieve the financial strain on average households.

Opposition Claims Budget Insufficient To Restore Investor Confidence

The proposals, however, drew criticism from the opposition People’s Justice Party (PKR), which argued the budget lacks plans to resuscitate private investment and rein in rising public debt.

“This budget does not address the key issues of economic structural reforms, inequality, and fair wealth distribution,” PKR lawmaker Wong Chen told reporters, claiming it fails to restore investor confidence.

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Business Groups Welcome Subsidy Overhaul, Concerned Over New Taxes

Malaysian business associations welcomed subsidy reforms to improve efficiency but raised concerns that new taxes could undermine consumer spending and economic recovery.

“We laud the government’s decision to rationalize subsidies by targeting only the needy,” said SME Association of Malaysia president Michael Kang. “But the luxury tax could hamper domestic consumption. The additional revenue may not offset the overall economic impact.”

Economists: Budget Focused More On Revenue Than Catalyzing Growth

Economists viewed Budget 2024 as largely aimed at raising revenue to rein in the fiscal deficit rather than catalyzing economic growth.

“The budget appears tilted more towards austerity and extracting revenue rather than pumping prime the economy,” Kenanga Investment Bank economist Wan Suhaimie Saidie told Bloomberg.

Maybank Investment Bank economist Chua Hak Bin echoed that the budget is “geared towards further fiscal consolidation after the pandemic largesse.”

Ordinary Malaysians Relieved By Subsidy Reforms, Wary Of Tax Hikes

On the streets, ordinary Malaysians expressed general support for subsidy restructuring to assist lower-income groups but had mixed views on new taxes that could increase living costs.

“I’m glad subsidies will finally go to the poor rather than wealthy people who don’t really need it,” sales executive Ahmad Firdaus told Reuters. However, some were anxious about potential higher inflation.

“The luxury tax won’t really affect me as I can’t afford those items anyway,” teacher Jamilah Petra said. “But I hope the other tax hikes don’t make everything else more expensive.”

As Malaysia charts its post-pandemic economic recovery, the new budget presents trade-offs between fiscal consolidation and stimulating growth. While reforms aim to strengthen state finances, their impact on costs of living and business sentiment will shape socio-economic outcomes in 2024.

While the 2024 budget’s focus on raising revenue and cutting subsidies aims to shore up Malaysia’s finances, its impact on consumers and businesses remains uncertain.

With global headwinds still strong, the government must strike a delicate balance between austerity and supporting economic growth. Critics argue more stimulus is needed to catalyze investment, while others say improving efficiency and governance should be prioritized.

As Anwar implements these difficult reforms, public acceptance and corporate buy-in will be crucial. Effective communication and transparent delivery of assistance and subsidies will be key to gaining trust and preventing discontent over potential cost increases.

With the economy still recovering post-pandemic, the ultimate test will be translating budget principles into positive outcomes for jobs, wages and standards of living.

After unveiling the 2024 blueprint, the Anwar administration now faces the harder task of driving reforms to usher in sustained prosperity equitably and transform Malaysia into a developed high-income economy.

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