Green incentives in Budget 2023 set to advance sustainability agenda: Kenanga Research
09 Oct 2022
The government, which has set a target to be a net zero greenhouse gas (GHG) emission nation by 2050, is now stepping up its efforts to advance the sustainability agenda via a few incentives included in Budget 2023, said Kenanga Research.
In a research note, it said some of these proposals are an extension from the previous budget, as the government realised the need to do more to start reducing carbon emissions.
“This is especially true for small and micro businesses as many of them lack the resources to start their environmental, social and governance (ESG) journey.
“Government-linked companies (GLCs), which have more resources and better expertise, will play a leading role in these efforts while small and medium enterprises (SMEs) and start-ups will enjoy access to various financing to help them adopt and accelerate their ESG plan,” it added.
Kenanga Research said addressing ESG issues is a long-term commitment, and this budget is a concrete start.
Among green incentives announced in the Supply Bill 2023 on Friday by Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz were the deadline extension for applications for the Green Investment Tax Allowance (GITA) dan Green Income Tax Exemption (GITE) to Dec 31, 2025, and further extension of the incentive period to five years from three years for activities such as solar and battery energy storage systems.
Meanwhile, Retirement Fund Inc (KWAP) chief executive officer Nik Amlizan Mohamed said the fund, along with fellow government-linked investment companies (GLICs) and GLCs, will be investing up to RM50 billion in 2023.
“We are particularly keen on ensuring that our investee companies are fully ESG-compliant and focused on carbon-neutral operations,” she said in a statement.
Nik Amlizan said the government’s initiative to highlight food security as one of the focus areas for this year’s Budget is indeed timely.
“We can only have sustainable economic growth if we have food security, particularly a Malaysia-owned food security strategy,” she said in a statement.
According to her, the RM1 billion allocation for the central bank to drive its Malaysia Agrofood Financing Scheme, focused on facilitating productivity improvement for entrepreneurs, augurs well for the future of Malaysia’s food security.
“KWAP is also focused on impact investing in the area of food security as it will have direct positive spillover benefits for Malaysians as well as the nation’s sustainable development,” she added.
RHB Research, meanwhile, said Budget 2023 remained expansionary in nature where there is substantial support to ease the financial burdens of the targeted groups.
“This includes providing the much-needed social assistance while maintaining government’s commitment in ensuring fiscal sustainability via the review of public expenditure and a plan to have a more targeted subsidy plan towards vulnerable groups.
“The fiscal resources would be channeled in a more targeted approach and allocated in priority areas,” it said in a research note.
RHB Research said Budget 2023 is unlikely to have any significant market moving policy announcements.
“The main policy focus is cash transfers and other types of assistance to lower to middle income households. There is no major change in tax policies as well,” it noted.
It said Malaysia’s economic momentum is likely to be slower in 2023 amid a highly uncertain global landscape due to geopolitical tensions and an expected slowdown in global growth.
“Thus the budget aims to increase the momentum for economic recovery with emphasis on structural reforms to strengthen its economic resilience, measures to support the growth of SMEs and priority sectors, as well as improve people’s well-being,” the research house said.
It noted that in line with the government’s commitment towards consolidating the fiscal position for a more sustainable public finance in the medium term, a lower fiscal deficit target is set for 2023 at 5.5 per cent of Gross Domestic Product (GDP).
“This is consistent with our fiscal deficit projection. The fiscal consolidation path is readjusted under the new Mid-Term Fiscal Framework as the fiscal consolidation would be accelerated once the inflationary pressure dissipates and economy fully recovers,” it added.
The earlier Finance Ministry projection for fiscal deficit to average at five per cent for 2022-2024 has been revised lower to 4.4 per cent for 2023-2025, while the fiscal deficit is projected at 5.8 per cent of GDP for 2022 (versus budgeted target of six per cent and RHB Research’s estimate of around six per cent of GDP).