FMM Comments on the 2025 National Budget

Well-Balanced Budget to Support the Expected Favourable Economic Conditions For 2025

Kuala Lumpur, October 18, 2024 – In keeping with the theme, Ekonomi Madani, Negara Makmur, Rakyat Sejahtera”, the Federation of Malaysian Manufacturers (FMM) views Budget 2025 as well-balanced. With economic conditions expected to remain favourable in 2025, the budget focuses on fiscal rationalisation and regional development without putting the burden on the rakyat. With the 2025 GDP expected to be in the range of 4.5-5.5%, the government targets to bring the fiscal deficit down to 3.8%. This is the largest budget with an expenditure of RM421 billion. Total expenditure is up 3.3%, mainly for operating expenditure (RM335 billion), whereas development expenditure is RM86 billion. The Budget estimates that the inflation rate in 2025 will be in the range of 2-3.5%. This is an increase over the current rate of 1.9% which may put further pressure on the cost of living.

FMM welcomes the announcement by the Government to support / focus on the development of industrial parks based on specific sectors; building on the strengths of individual localities in the states outside of Klang Valley, supported by infrastructure improvements on road, water supply and connectivity. We are also supportive of the government’s efforts to encourage higher value-added activities such as the E&E sector including integrated circuit design, digital technology, AI and robotics. The new Investment Incentive Framework to be introduced is expected to boost high-value sectors.

Business Friendly Environment Critical To Support Investments and Growth

FMM welcomes the initiatives announced to reform the 3,000 archaic laws and regulations as well as the additional allocation to the Special Taskforce on Agency Reform (STAR) to expand the efforts to address bureaucratic processes at all Government agencies towards reducing unnecessary regulatory burden including processing of approvals to ease the cost of doing business in the country. Further to this, FMM reiterates its call on the Government to mandate the National Policy on Good Regulatory Practices (NPGRP) which emphasises transparency, accountability and efficiency in Government service delivery.

FMM commends the Government's efforts to combat corruption through the National Anti-Corruption Strategy (NACS) and the additional allocation to the Malaysian Anti-Corruption Commission (MACC). This, together with the introduction of the Freedom of Information Bill and the Government Procurement Bill, would play a critical role towards improving Malaysia’s ranking in the Corruption Perception Index (CPI). To further strengthen these efforts, FMM urges the government to swiftly implement the Government Procurement Act and to ensure its alignment with NACS to create a more equitable environment for SMEs and reduce corruption risks. FMM has consistently advocated for a unified procurement law since 2019, emphasising the need to include state governments and GLCs within its scope.

Human Capital Initiatives

The industry commends the following initiatives towards the development of human capital:

i. The Government's announcement on the review of the minimum wage to RM1,700 effective February 1, 2025 as it recognises the pressures arising from the need to balance wages of workers to keep up with inflation and consumer price movements while ensuring sustainable growth for industries. FMM looks forward to the well-considered implementation that supports both employee welfare and business competitiveness.

ii. The announcement of the implementation of the multi-tier levy mechanism (MTLM) by early 2025 and the channelling of the levy collected to empower the industry towards automation and mechanisation which would be integral to supporting the move towards more technology adoption and digitalisation which would create a higher demand for skilled workers and a reduction on reliance on low skilled foreign workers, which would ultimately move the country to its target of attaining a high-income nation status. It is however important that the implementation of a tiered levy system be premised on easy and transparent criteria; pre-announced deadline of implementation; inclusion of a clear planned and transparent schedule of cost increase; gradual increase in rates to minimise impact on business cost as well as inclusion of incentives to reward businesses which reduced use of foreign workers.

iii. Allocation of RM64.1 billion to the Ministry of Education and RM18 billion to the Ministry of Higher Education with emphasis on STEM and AI as well as the RM7.5 billion for TVET education, including support for industry collaboration, towards building a highly skilled workforce.

iv. Continuation of the Structured Internship Programme (MySIP) under Talent Corp which would be critical to address the skill requirements of industries.

v. Support for implementation of flexible work arrangements which promote work-life balance for employees as well as benefit employers which can ultimately contribute to the growth and success of the organisation.

Initiatives to Broaden the Government’s Tax Base

We are disappointed with the decision by the Government to increase excise duty on sugar sweetened beverages from the current 50 sen per litre to 90 sen per litre to address obesity and non-communicable diseases (NCDs). A holistic, sustainable and multi-pronged approach which includes education and supporting Ministry of Health (MOH) initiatives through the "Healthier Choice Logo” (HCL), community involvement, and accessible health care services is more favourable than a ‘hard policy' such as taxation.

The proposal to increase sales tax on premium imported products such as salmon and avocados must be carefully assessed. Many of these products are already subject to a 5% sales tax. Raising the tax could introduce administrative challenges and place an additional burden on consumers, especially as these products have become more common in Malaysian households. A thorough review is essential to ensure the policy achieves its goals without unintended impacts on the people.

Transition to Net Zero

FMM welcomes the following in support of industry’s efforts to comply with the Energy Efficiency and Conservation Act and the overall ESG initiatives:

• The extension of Green Technology Financing Scheme with additional RM1 billion allocation until 2026;
• E-rebate allocation of RM70 million for consumers and industries to purchase energy efficient equipment should prioritise SMEs in particular to replace inefficient motors or boilers, etc; and
• The extension of Net Energy Metering until 2026 and the introduction of Corporate Renewable Energy Scheme (CRESS). To accelerate the transition to net zero, there could be further efforts to enable premise owners to optimise the rooftop utilisation and for CRESS to be eligible to existing users with no additional supply requests.

FMM also hopes that the carbon tax to be introduced for the energy sector by 2026 would not translate into a higher electricity tariff for the industrial sector. In addition, given the coverage of the proposed carbon tax on the iron and steel and energy sectors, it is crucial that the Government have in place the Emission Trading Scheme, which is the preferred mechanism by the industry, to drive more cost-effective emission reductions.

Support for SME and Women Entrepreneur Development

The RM3.8 billion allocation for SME Digitalisation & Automation Loans is commendable. However, it should be offered to SMEs at a low interest rate of 2%-3% as many SMEs are still lagging their regional peers in terms of Industry 4.0 technologies adoption.

However, FMM is disappointed that the Government did not take up FMM’s proposal to provide double tax reductions for companies that adopt Industry 4.0 and digitalisation technology on AI, Big Data Analytics (BDA), Manufacturing Robotic Systems, and Factory Automation Systems, etc that could enhance manufacturing processes and support local SMEs in embarking on their smart manufacturing journey.

We welcome the initiative of RM470 million financing fund provided by SME Bank, BSN, Bank Rakyat, and MARA which FMM has been actively advocating. This fund will be instrumental in helping women-led SMEs secure working capital, acquire assets, and expand their business capacity to higher levels. Supporting such access to financing aligns with FMM’s efforts to promote the growth and sustainability of women entrepreneurs, driving inclusive economic development.

Expanding Market Access

FMM commends the Government for introducing initiatives to strengthen the capability and capacity of local companies to enhance their global competitiveness, including the RM1 billion Mid-Tier Company Program by Khazanah and the RM750 million Export Sustainability Incentive Scheme by EXIM Bank. These efforts align with FMM’s advocacy to support Malaysian exporters in expanding their operations internationally. The RM40 million from MATRADE for export promotion will further aid companies in accessing new markets, particularly in Africa, Latin America, and the Middle East. This initiative is especially timely, given the export growth to emerging markets last year and the recent conclusion of the Comprehensive Economic Partnership Agreement (CEPA) with the UAE, which opens new trade opportunities as a gateway to the Middle East.

Conclusion

Overall, the FMM is of the view that this Budget is supportive of higher value-added activities, Environmental, Social and Governance (ESG) and net zero targets, as well as greater market access which are key to achieving positive economic growth in 2025.


Tan Sri Dato’ Soh Thian Lai
President, Federation of Malaysian Manufacturers

FMM Advocates Transparency, Integrity and No Corruption

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Date: 18 October 2024