PETALING JAYA: Targeted subsidies may be in the offing in view of the insufficient revenue derived from commodities.

       To this end, analysts concurred there could be adjustments in the subsidy mechanism to finance the surge in subsidies in the upcoming Budget 2023.

       CGS-CIMB Research said it was not surprised by the recent 2023 pre-budget statement, as the government has hinted at a new subsidy mechanism countless times and during its session with the Finance Minister on March 22.

       “In the pre-budget statement, the government admitted ‘the increase in revenue from commodity-related taxes is insufficient to finance the increase in subsidies’, highlighting the pressure on its finances. It also hints at more targeted subsidies ahead, implying a likely removal of the subsidy meant for the top 20% of the population.

       “We are positive on a more efficient subsidy but remain sceptical about the implementation of such a mechanism. Past governments have toyed with this idea with little success.

       “For instance, the last Pakatan Harapan proposal for a petrol card back in 2018 never saw the light of day.

       “But a successful implementation would be positive for government finances,” it said.

       Furthermore, despite the high subsidy commitment, the government expects the fiscal deficit at 6% of gross domestic product (GDP) for this year, an improvement from 6.4% in 2021.

       CGS-CIMB believes this could only be achieved through higher dividend payouts by government-linked companies, particularly Petroliam Nasional Bhd (Petronas).

       In August 2021, Petronas declared an additional RM7bil dividend payment to the government amid rising oil prices on top of its initial target of RM18bil.

       “We believe Petronas will be able to surpass its initial commitment of RM25bil dividend payment in 2022 as well, as the government expects an additional RM30bil in subsidy spending,” it noted.

       Meanwhile, the pre-budget statement did not mention a deficit target for 2023, although the statement highlighted the need for continued fiscal consolidation towards 3.5% of GDP by 2025.

       “We pin further improvement in the deficit to 5% of GDP in 2023 from 6% in 2022. So far, the government has not revised its fiscal expenditure projection for the year, noting that the Finance Ministry did not share its 2022 and 2023 GDP projections,” it said.

       The pre-budget statement, the research house said, did not mention the prospects of the reimplementation of the goods and services tax (GST).

       Given the sensitivity, it does not expect the government to commit to the GST, although chances are that there could be a return of the tax in one form or another.

       The shift away from the GST to the sales and service tax or SST in 2018 caused the government a loss of about RM20bil which would be needed to plug the fiscal gap left by higher subsidies and pursue fiscal consolidation.

       CGS-CIMB expects Budget 2023 to be announced early this year, as it noted that the pre-budget statement came out on June 3 compared with Aug 31 last year.

       “This could suggest that elections are likely around the corner and the government may want to push for an early budget.

       “Nevertheless, we do expect an expansionary ‘election’ budget, with issues such as the GST likely to be tackled post-election by the new government.

       “We maintain our GDP growth forecasts of 5.6% year-on-year for 2022 and 5% for 2023. Our 2023 consumer price index forecast of 2% may see an upside after the subsidy adjustment,” it said.