Overview of Budget 2024
Updated: Oct 30
Written by Humaira Nur Taqiah Binti Shafril (Research Assistant), Yugendran T Kannu Sivakumaran (Research Assistant)
Amidst the fervent chatter surrounding the recently released budget, differing opinions and stances within the public are only natural. Given the ever-growing demands and divergent needs of the country, achieving universal satisfaction is undoubtedly a challenging task. Nevertheless, let's delve into a few highlights of the budget that we find particularly intriguing.
One potentially contentious issue regarding the budget is the government's proposal to raise the Sales and Service Tax (SST). While SST is inherently regressive and disproportionately affects those in lower-income groups, it mainly impacts discretionary spending rather than necessities. The 2% increase to 8% is not expected to significantly impact groups with less spending power, such as the B40 or M40 groups, as critical sectors like telecommunications and food and beverage will remain unaffected by this increase. Given their income levels, the B40 and M40 groups are less likely to purchase high-priced discretionary goods, so the impact on their spending is projected to be relatively minor. For instance, if they purchase a product from a mid-range store that costs RM 30, previously with a 6% SST, it would amount to RM 31.80, and with the increase to 8%, it would total RM 32.40. The groups that will be most affected are those who can afford it, such as the T20 group. However, considering their higher spending power, this increase may not pose a significant problem for them.
The increased SST is expected to boost government revenue, enabling reallocation for public benefits, including investments in infrastructure. Tax revenue significantly contributes to a country's development, as aptly noted by Oliver Wendell Holmes, an associate justice of the United States Supreme Court from 1902 to 1932, who famously stated, "Taxes are what we pay for a civilised society."
On that note, the increase in the SST percentage underscores the potential superiority of GST over SST. If the GST were set at its 6% rate, it could potentially double the government's tax collections. The government is projected to collect RM34.2 billion in SST tax revenue in 2023; with GST, this figure could almost double, providing additional funds that could be utilised to assist the people. The superiority of GST over SST lies in its broader tax base, as GST is applied at every level of the transaction, whereas SST is levied at the consumer level. Concerns about GST leading to increased costs for most goods could be mitigated by the fact that businesses can claim it, potentially leading to price reductions. Additionally, it is not applied to essential goods.
Without a doubt, an increase in taxes is likely to result in a higher cost of living. However, the additional tax revenue enables the government to invest more into addressing inequality through poverty eradication programmes. This year’s budget reflects various programmes aimed at assisting lower-income groups. Initiatives such as Payung Rahmah and cash handouts through STR and SARA will provide relief, allowing the impoverished to afford basic necessities and have the means to spend and save the allocated funds. Nevertheless, this situation raises concerns about potential programme overlaps leading to inefficiencies and a misallocation of the government’s budget.
For instance, Malaysia has implemented numerous small-scale social protection and poverty reduction programmes, with around 17 agencies administering 170 diverse initiatives. This fragmented system often leads to overlapping efforts and inefficiencies, hindering the overall impact. To address these challenges, a cohesive approach is necessary to streamline and consolidate these programmes into more comprehensive and inclusive social protection schemes. By creating a more unified safety net, Malaysia can effectively tackle the complex issues of poverty and social vulnerability.
Furthermore, the government’s efforts to digitise the registration process for these programmes, such as the Inisiatif Pendapatan Rakyat (IPR), are commendable. Previous research has indicated that transportation costs were a barrier for lower-income groups in accessing such programmes. However, this also underscores the importance of allocating the budget to enhance and expand internet connectivity in Malaysia, particularly in the Borneo states. The government has allocated around RM12.4 billion in next year’s budget for these development projects.
In line with the 12th Malaysia Plans targets of reaching a Multidimensional Poverty Index of 0.0026 in 2025, the government has allocated RM2.47 billion for the implementation of the People’s Housing Projects, with an allocation of RM460 million to provide assistance to approximately 65 thousand poor people in rural areas to build new houses or repair dilapidated ones. Additionally, the government has allocated RM150 billion through the Kumpulan Wang Amanah Pelajar Miskin to ensure that children from impoverished households are not left behind in education.
Besides this, another significant piece of news that may have gone unnoticed by many is the RM20 million investment in establishing the Faculty of Artificial Intelligence Center at the University of Technology Malaysia (UTM). Artificial intelligence (AI) is a crucial industry that Malaysia needs to explore, especially considering that by 2025, AI could potentially put around 85 million jobs at risk globally, predominantly in the quantitative space. In addition to that, it is also projected to create 97 million jobs, resulting in a surplus of 12 million jobs. Moreover, by 2030, with the development of the AI industry and the indirect benefits it will bring, the global economy is expected to grow by 14%, equivalent to an increase of $15.7 trillion. In addition to that, generative AI could help develop Malaysia's productive capacity by $113.4 billion. We applaud Malaysia's expansion into this field and we hope to see its continued growth.
Another significant disclosure was that 200 million of the RM95 billion needed for the New Industrial Master Plan (NIMP) was allocated for 2024, which is a remarkable development for the manufacturing industry as one of the pivotal objectives for the manufacturing sector is the integration of Industrial Revolution 4.0 (IR4). In simple terms, IR4 represents the fourth industrial revolution, designed to enhance efficiency in the manufacturing domain through the application of cutting-edge technologies such as AI and blockchain. If implemented effectively, IR4 has the potential to amplify Malaysia's productivity output by nearly 30%. It is suggested that a 1% increase in service output can elevate employment by 0.5%. This implies that, with the integration of IR4, Malaysia could experience a 15% surge in employment demand.
However, one significant aspect that was overlooked in the budget was the allocation for Web 3, encompassing crucial technological advancements like blockchain. The latest major initiative mentioned concerning blockchain in Malaysia was the National Blockchain Roadmap 2021-2025. Regrettably, there have been no updates on this for an extended period, which is disappointing considering the significant growth projected for the blockchain and Web 3 industry. It is expected to expand to $469 billion by 2030 from its relatively modest $17.57 billion in 2023. Therefore, we firmly believe that this represents a missed opportunity.
In summary, the budget appears promising. With sustained political stability and effective enforcement, Malaysia can anticipate a bright and prosperous future.