Malaysia: Budget 2022 – Cost of Reforms

Flash note on the Budget 2022 brought to you by UOB Malaysia's Senior Economist

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Julia Goh, Senior Economist, UOB Malaysia shares about the Malaysian Budget 2022

The government unveiled an expansionary budget for 2022 to support the post-pandemic recovery, rebuild resilience, and catalyse economic reforms. It plans to spend RM233.5bn on operating expenses, RM75.6bn on development expenditure, and RM23bn on COVID-19 Fund, bringing total outlays to a record RM332.1bn or 20.3% of GDP in 2022 (2021F: RM320.6bn, 21.2% of GDP). Overall budget support aims to revive real GDP growth to 5.5%-6.5% in 2022 (2021F: 3.0%-4.0%) through domestic demand. The government’s buoyant growth outlook assumes the successful containment of the pandemic, effective vaccination implementation, and strong global economic prospects.

There was a balance of measures to support households and businesses, kick-start investments, and drive responsible growth. Key positives include extended sales tax waivers for purchase of passenger vehicles, full exemption of duties/sales tax/road tax for EVs, removal of RPGT for house sales from 6th year onwards, targeted wage subsidies, helping SMEs adopt low-carbon practices, financing schemes for businesses, and a special fund for strategic investments. However, a key negative was the one-off prosperity tax on high revenue-generating companies.

The government targets a narrower fiscal deficit of RM97.5bn or 6.0% of GDP in 2022 (2021F: RM98.8bn or 6.5%). It aims to further consolidate the medium-term fiscal position to 5.0% over 2022-2024. This signals commitment to be fiscally responsible yet ensure sufficient support for the economy. The statutory debt level is targeted at 63.4% of GDP in 2022, below the new debt ceiling of 65% until the end of 2022. Targets are ambitious while continued fiscal support and reforms have their own cost as the budget pivots towards a prosperity sharing path. Beyond 2022, further efforts to enhance spending efficiency, reduce leakages, optimise operating expenditure, and broaden the non-oil revenue base are crucial to preserving fiscal sustainability in the new norm.