While Malaysia is a vibrant and highly export-driven economy in Southeast Asia, it is also an oil-rich state whose government has often resorted to subsidies and cash handouts to mobilize public support, especially around election cycles. The state-owned oil and gas company, Petronas, is the country’s largest single taxpayer and revenue source, typically footing the bill for as much as 45 percent of the government’s budget.
As the cost of living has increased in recent years, the government has responded with tax rebates, incentives, and cash handouts to the poor. As a result, subsidies account for a sizable portion of the government’s budget deficit. On October 25, Prime Minister Najib Razak announced Malaysia’s 2014 budget, designed to put the country’s fiscal house in order and focused on long-term growth objectives. The budget includes notable cuts to subsidies, but also increases spending on public investments. We look at the effects of Malaysia’s entitlement state by the numbers.
The total cost of food and energy subsidies incurred by the Malaysian government last year. Fuel subsidies accounted for about half of the total, while the rest went toward education, welfare assistance, and food subsidies. In 2012, Petronas reportedly contributed $5-6 billion to government coffers to subsidize gas consumption.
The new cost per pound of sugar, up from 36 cents, following the lifting of the sugar subsidy. The new price is still about half that paid in neighboring Indonesia and Thailand. Proponents of the repeal argued that the subsidy mostly benefited manufacturers of soft drinks and other sugar-based products, while encouraging unhealthy diets.
Malaysia’s debt-to-GDP ratio at the end of the second quarter of 2013. This debt level prompted ratings agency Fitch to downgrade the nation’s sovereign credit-rating outlook to negative in July. The government hopes to gradually reduce the fiscal deficit with the aim of achieving a balanced budget by 2020.
The rate of Malaysia’s new Gifts and Services Tax (GST), which will go into effect in April 2015. Although the GST is higher than previously anticipated, staple products such as milk and eggs, and the transportation, education, and health sectors, will be completely exempted.
The number of Malaysians who pay income taxes to the government. Under the new budget, families with monthly incomes of less than $1,258, amounting to about 300,000 taxpayers nationwide, will be exempted from any tax liabilities.