Malaysia eyes a fairer future with enhanced revenues and prudent public spending

Kuala Lumpur [Malaysia], October 10 : Malaysia is gearing up for economic expansion, with projections indicating a growth rate of 3.9 per cent for 2023, a figure poised to rise to 4.3 per cent in 2024.
According to a press release by The World Bank, these optimistic forecasts come from the World Bank's Malaysia Economic Monitor, titled "Raising the Tide, Lifting All Boats," unveiled today.
Despite subdued external demand and a slowdown in China, a global recovery on the horizon is expected to bolster Malaysia's economic prospects.
However, the recent performance of Malaysia's Gross Domestic Product (GDP) reveals a growth rate deceleration, reaching 2.9 per cent in the second quarter of 2023.
While domestic demand continues to grow, its momentum has moderated, leading to concerns about revenue collection, which is anticipated to remain relatively low.
In response, the report underscores the critical need for efficiency improvements in government expenditure, particularly the refinement of subsidy measures to benefit those most in need.
To achieve this, a combination of stronger tax collection, reduced blanket subsidies, and better-targeted support for vulnerable populations is recommended.
Malaysian Minister of the Economy, Rafizi Ramli, acknowledged the nation's history of employing taxes, transfers, and subsidies to significantly reduce poverty.
Ramli said, "Over the years, Malaysia's taxes, transfers, and subsidies have helped us reduce poverty by a great margin, but income inequality is still high compared to other countries".
"We could get more out of our social programs by targeting them better for the poor and increasing their adequacy. And we could further reduce poverty and inequality by increasing social spending while improving efficiency. Cutting blanket subsidies and improving the targeting of social assistance are the key measures the Government intends to take for better impact on the poor and the vulnerable", added Ramli.
However, he noted that income inequality remains high compared to other countries.
Minister Rafizi Ramli highlighted the potential to optimize social programs by enhancing their targeting for impoverished individuals and increasing their effectiveness.
He also emphasized the opportunity to further reduce poverty and inequality by expanding social spending while enhancing efficiency, particularly through the reduction of blanket subsidies and improved targeting of social assistance.
The report also scrutinizes Malaysia's persistent income disparities, despite substantial progress in poverty reduction and narrowing income gaps among ethnic groups over the past half-century.
The nation's tax revenues, at 12 per cent of GDP, fall considerably short of the upper-middle-income country average of 18 per cent.
This limited fiscal space poses challenges for investments that foster growth and benefit low-income segments of society.
To address these challenges, Malaysia is urged to enhance its revenue capacity. Strategies include strengthening general consumption taxes, personal income tax, and health taxes, streamlining corporate tax incentives, expanding capital gains taxes, and exploring progressive tax options.
These measures are expected to create fiscal space necessary to meet escalating spending and investment requirements.
World Bank Country Director for Brunei, Malaysia, Philippines, and Thailand, Ndiame Diop, underscored the potential for Malaysia to make substantial strides in poverty reduction and fiscal improvement by adopting a broader perspective on government spending.
Diop said, "Malaysia could reduce poverty and inequality and improve its fiscal position by taking a broader view of government spending. This approach aligns with Prime Minister Datuk Seri Anwar Ibrahim's emphasis on a people-centric perspective, embodied in the Madani Economy framework,"
"For example, redirecting the 2022 fuel subsidies to strengthen social assistance programs could double poverty reduction while generating 1.6% of GDP in fiscal savings", said Diop.
This approach aligns with Malaysian Prime Minister Datuk Seri Anwar Ibrahim's vision of a people-centric economy, as articulated in the Madani Economy framework.
The report emphasizes the significance of enhancing the adequacy and precision of existing social assistance programs, which could offset the rising cost of living by increasing consumption taxes or reducing fuel subsidies.
Consequently, the redirection of new revenues and cost savings into social assistance budgets can produce both short-term benefits in reducing poverty and inequality and long-term gains through investments in education and healthcare.
Malaysia's path to a fairer future lies in strategic revenue enhancement and the meticulous allocation of resources to create a more equitable society, while also ensuring fiscal sustainability in the years ahead.