Malaysia to revamp gasoline subsidies and raise taxes in a bid to narrow deficit

[October 19, 2024]  

KUALA LUMPUR, Malaysia (AP) — Malaysia will introduce new taxes and revamp gasoline, education and healthcare subsidies next year as part of aggressive reforms to narrow the country's fiscal deficit, Prime Minister Anwar Ibrahim said Friday as he unveiled a national budget for 2025.

Anwar told Parliament that Malaysia spends some 80 billion ringgit ($18 billion) annually on subsidies, grants and financial aids, of which a quarter is used to subsidize the widely-used RON95 gasoline. But the government's tax revenues are low at under 13% of GDP, he said.

“We have blanket subsidies on fuel, electricity, water, education and health services and even basic goods such as chicken," he said. “Such an approach is not feasible when the country is burdened with high debts and a low revenue base.”

“Next year’s fiscal reform will be more aggressive with the progressive expansion of tax revenues and subsidies targeted for those most in need," he added.

The subsidy restructuring is part of economic reforms pledged by Anwar, who took power in 2022, to save the country billions of dollars annually, correct imbalances and build a more sustainable economy. Malaysia has implemented targeted subsidies for diesel and electricity, adjusted water tariffs and removed subsidies for chicken this year.

Anwar said targeted subsidies for gasoline will be implemented from mid-2025 and will save 8 billion ringgit ($1.9 billion) annually as foreigners and the super-wealthy will no longer be able to enjoy them. While full details were not released, Anwar said the majority of Malaysians will not be affected by the move.

Subsidies for government boarding schools and healthcare will also be revamped so that high-income families and individuals will have to pay more for the services.

Anwar said the moves will help narrow the country's fiscal deficit to 3.8% of GDP next year, from an estimated 4.3% this year.

The fiscal reforms may anger working-class voters struggling with the rising cost of living, though Anwar has been able to ride on stronger economic growth this year.

He said the economy is expected to grow between 4.5% and 5.5% next year, up from an estimated 4.8%-5.3% this year.

Anwar unveiled a record budget spending of 421 billion ringgit ($98 billion), up 3.3% from this year, that aims to reinvigorate the economy, strengthen infrastructure and industrial growth.

Education, healthcare and security will be the main beneficiaries, accounting about a third of total spending.

To bolster government revenue, Anwar said the government also plans to gradually expand a sales and services tax next year, hike taxes for sweet drinks as part of the government's “war on sugar” and impose taxes for share dividends.

Anwar also announced higher cash handouts and assistance for lower-income groups, and said the government plans to hike the country’s minimum wage by 13% to 1,700 ringgit ($395) a month from February. He said the country’s economic reforms could not be considered successful until Malaysians begin enjoying higher incomes.

Anwar said he will continue not to receive a salary, while Cabinet ministers’ pay will also remain cut by 20%.

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