Spending across all sectors in Malaysia, except subsidies, will increase in 2023

Malaysia’s government plans to spend heavily across key sectors, supported by strong revenues in 2022

B2B firms in the infrastructure space should capitalize on higher spending on construction and renovation work in areas such as transport, education, and healthcare. Firms in the information and technology sector should also account for increased spending to improve digital connectivity in industrial areas and schools. B2C firms that cater to low- and middle-income consumers can expect continued robust demand in 2023 due to strong subsidy spending and favorable tax changes. With the brunt of the burden of the changes in the tax structure falling on high-income earners and luxury products, B2C firms should expect some impact on the demand outlook for this segment. Nonetheless, considering that price and income elasticity of demand in this segment tends to be low, the degree of impact on consumer demand is also not likely to be severe. 


PM Anwar bin Ibrahim released the revised budget for FY 2023 (January 2023–December 2023) on February 24, as the original budget was not approved before the parliament was dissolved for general elections. Malaysia’s government expects to spend a total of MYR 388.1 billion (US$ 85.4 billion), marginally lower than the originally proposed MYR 395.2 billion (US$ 86.9 billion), to adjust for lower spending on COVID support.  Despite this, the total budget is only marginally lower, reflecting increased spending across key sectors. 

All budget line items, except subsidies, have received larger budget allocations for 2023 compared to 2022. Key spending areas for the new government are:

  1. Infrastructure: The government plans to spend MYR 17.6 billion (US$ 3.9 billion) on transport infrastructure, specifically to build and upgrade roads and highways and upgrade existing roads, airports, and ports. Spending on transport is a key focus of the government, accounting for roughly 4.5% of total expenditure. Additionally, MYR 13.3 billion (US$ 2.9 billion) will be spent on the construction and renovation of schools, training institutes, and colleges. The healthcare sector will receive a sizable MYR 4.9 billion (US$ 1.1 billion) to build and upgrade healthcare facilities. Total capital expenditure is estimated to increase by 35.5% in 2023—the highest in four years—as the government tries to boost post-COVID growth. 
  2. Subsidies and social assistance: The government will continue to spend on subsidies (cash handouts and price controls) to combat inflation, although the government will not need to spend as much as it did in 2022 due to lower global oil prices. Members of the B40 (bottom 40%) income group will receive cash aid up to MYR 2,500 (US$ 550). Subsidies amounting to MYR 1.6 billion (US$ 0.4 billion) will also be provided to rice farmers.
  3. Digitalization: Anwar’s administration is making a push toward improving digital connectivity this year. Bank Negara Malaysia will provide MYR 1 billion (US$ 0.2 billion) to micro, small, and medium enterprises to automate and digitalize their businesses. The government will also allocate MYR 725 million (US$ 160 million) to improve digital connectivity in 47 industrial areas and 3,700 schools.

To offset high spending, the government will redistribute the tax burden on the Malaysian public. A luxury tax will be levied on items such as high-value watches, and an excise duty will be imposed on vapes and electronic cigarettes. The income tax for earners with an annual income between MYR 100,000 and MYR 1 million (US$ 22,000 to US$ 220,000) will increase by 0.5–2.0% points, while taxes will be reduced by 2.0% points for individuals earning between MYR 35,000 and MYR 100,000 (US$ 7,700 to US$ 22,000). Additionally, the government will not introduce a goods and services tax to ease pressure from high inflation on low- and middle-income consumers.

Our View

Malaysia’s 2023 budget is effectively a pre-election budget. The government’s ambitious spending plans are a precursor to its election bid for six key state elections this year, in the face of a tenuous coalition. To fund this spending, the government will partly use debt—which is already at historically high levels—effectively raising debt servicing costs. Government plans to increase infrastructure spending in areas such as transport and digital infrastructure are likely to remain medium-term priorities for the government to boost growth and spur domestic investment. Additionally, the tax and subsidy plans for 2023 are specifically designed to offset ongoing inflationary pressures and are likely to cushion consumer spending growth, especially for price-sensitive consumer segments.

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