FMM: Budget 2023 lacks specific support for manufacturing

• Agrees reintroduction of GST not ideal now but urges govt to consider it for 2024
• Disappointed National TVET Apprenticeship & National Automation Fund idea not adpted

The revised Budget 2023, unveiled recently by Finance Minister Datuk Seri Anwar Ibrahim with the theme “Membangun Malaysia Madani”, is the Unity Government’s first budget which outlines its policies and priorities. 

The Federation of Malaysian Manufacturers (FMM) recognises that the task of drafting the revised 2023 budget is a challenging one given the various opposing forces.

On one hand, as of January, Malaysia’s fiscal debt including liabilities stood at US$335 million (RM1.5 trillion). Fiscal consolidation is important to regain investors’ confidence and improve the country’s credit rating. FMM, therefore, fully supports a gradual reduction of the 2023 fiscal deficit to 5% from 5.6% in 2022 and the government’s firm commitment toward medium-term fiscal consolidation. 

On the other hand, the Budget was drafted against the backdrop of a slower economic growth projection for Malaysia of 4.5% in 2023 against 8.7% the previous year. In addition, persistent inflationary pressures are set to remain while economic uncertainties are likely to continue given the still challenging global economic and geopolitical outlook. The IMF in its latest World Economic Outlook report projects global growth to fall to 2.9% in 2023 from 3.4% in 2022.

On balance, FMM feels that the scope for fiscal restraint is limited and a budget that protects the well-being of the rakyat is warranted. Hence, FMM applauds the Government for unveiling a caring budget with a larger allocation of US$86.90 billion (RM388 billion) by striking a fine balance between fiscal discipline and helping the rakyat to cope with the rising cost of living.

On the GST, while it is a broad and effective tool to generate more government revenue, FMM agrees with the assessment that the timing is not right for its reintroduction, given its inflationary implications and the likely burden on the lower-income groups. However, the FMM urges the government to consider a reintroduction in 2024.

High Impact and Technology Investments to Further Spur Industrial Development

FMM welcomes the initiatives introduced by the Government to further spur investments in the high technology and high impact sectors in line with the National Investment Policy. The formation of the Invest Malaysia Council and the National Committee on Investment that will spearhead the efforts to expedite the approvals of these high potential investments and the announcement of the New Industrial Master Plan 2030 which will be launched in the third quarter of 2023 will set the direction for high quality industrial activities which will have a multiplier effect on the economy including creation of high skilled jobs.

Human Capital Initiatives

The industry commends the initiatives introduced to further empower the TVET agenda via Public Private Partnership collaborations on pilot projects involving national TVET institutions with selected private sector companies including Government Linked Companies. This initiative will be a fresh approach towards driving the industry-led TVET agenda towards producing TVET graduates that meet the needs of the industry and improving graduate employability. The industry also welcomes the RM45 million allocation under SOCSO to incentivise employers to offer higher remuneration of TVET graduates.

The RM1bil allocation, an increase from the previous RM750 million allocation to HRD Corp is lauded as it would further drive re-skilling and upskilling of the workforce as well as the RM50 million allocation for National Dual Training System which will further strengthen industry collaboration to provide students with the right industry exposure to meet the industry’s skills needs.

[RM1 = US$0.223]

We are however disappointed that the Government did not take up FMM’s proposal for the Government to channel the foreign worker levy towards the setting up of a National TVET Apprenticeship Fund and National Automation Fund as a two pronged approach towards reducing dependence on foreign workers.

Green Practices in Businesses

FMM appreciates several initiatives outlined to facilitate business community in accelerating the transition towards sustainable practices and contributing to the national net zero emission target by 2050, namely:

• RM3 billion Green Technology Financing Scheme until 2025. Industry awaits the details and hopes that the interest subsidy would be reintroduced.
• RM150 million funding from Khazanah Nasional Berhad in support of green projects development including the carbon market and reforestation.
• Extension of Green Investment Tax Allowance (GITA) dan Green Income Tax.
• Exemption (GITE) until December 31, 2025.

Government Procurement (GP) Act to Support Buy Made in Malaysia Mandate

The move to expedite the implementation of the long overdue Government Procurement (GP) Act is welcomed to support business and economic revival. FMM has advocated for the Ministry of Finance since 2019 to develop a single unified GP Policy to house all GP related laws and policies and to ensure the regulations are enforced effectively through this single legislation. FMM requests that the policy is developed to include States and Government Linked Companies (GLCs).

The enactment of the GP Act will spur more domestic market demand for Malaysian made products especially from the public sector which would help to build the capacity and capability of local companies, particularly the small and medium enterprises (SMEs), to build their brand integrity in export market.

Supporting Industry 4.0 Adoption

FMM welcomes the government efforts to continue its support for 5G implementation in Malaysia. We however urge the government to focus and speed up the 5G implementation and review its Internet connectivity strategies, particularly in industrial areas and expanding the coverage of the JENDELA programme to cover all industrial areas in the country to facilitate Industry 4.0 technology and support digital adoption amongst manufacturers.

Support for SMEs

The reduction of the taxable income from 17% to 15% for the first RM150,000 is a good start, however that is not sufficient enough. We recommend that it should be for the first RM600,000 in order for there to be a more significant impact in improving SMEs’ financial standing in anticipation of a volatile and uncertain global economic environment.

We applaud the RM100 million allocated under the SME and Micro-Traders Digitalisation Scheme and the matching grant of up to RM5,000 for the use of digital tools. It would be more impactful if a grant of at least RM200,000 per company could be allocated under this scheme and to as many SMEs as they have very low level of digital adoption.

The BNM financing of up to RM2 billion to support ESG start-ups and to assist SMEs to adopt low carbon practices is a good move and we eagerly await the details. More tax allowance is also welcomed to help SMEs offset their ESG-related expenses.

Conclusion

Overall, the FMM is of the view that Budget 2023 is prudent. However, we are disappointed that Budget 2023 has not provided any assistance to support trade for industries to expand their market access as many face severe impact to their existing markets due to the prolonged Ukraine-Russia conflict.

Soh Thian Lai is President of Federation of Malaysian Manufacturers