KUALA LUMPUR (Oct 18): The federal government has revised the 2024 expenditure 3.47% higher from the initial allocation of RM393.8 billion to RM407.5 billion, breaching the RM400 billion-mark for the first time in history.

The revision took into account additional spending on petrol subsidies and phased implementation of the new Public Service Remuneration System (SSPA), according to the 2025 Fiscal Outlook and Federal Government Revenue Estimates published by the Ministry of Finance (MOF).

This comes earlier than economists' projections, based on a poll by The Edge published on Tuesday, that total fiscal expenditure would only exceed RM400 billion in Budget 2025.

Malaysia's total budget allocation has grown every year at an average annual growth rate of 4.6% over the past decade, except for Budget 2016, 2017 and 2020, which had lower allocations compared with its respective previous years.

While savings from the subsidy reform initiatives, particularly poultry, electricity and diesel, have been said to be redirected to cash assistance programmes, total operating expenditure (opex) in 2024 is still estimated to increase by 5.8% or RM17.7 billion compared to initial estimates, due to higher subsidies and social assistance, emoluments, retirement charges as well as debt service charges.

Allocation for subsidies and social assistance in 2024 was raised 16% to RM61.4 billion from RM52.8 billion.

Emoluments were revised 4.4% higher to RM99.8 billion from RM95.6 billion; retirement charges were raised 5.8% to RM34.4 billion, from RM32.5 billion; whereas debt service charges were raised 2% to RM50.8 billion, from RM49.8 billion.

On the other hand, development expenditure (DE) is expected to decrease to RM86 billion or 4.4% of gross domestic product (GDP), taking into account the progress of programmes and projects under the 12th Malaysia Plan, 2021-2025. It was earlier projected at RM90 billion.

"However, DE spending remains above the statutory limit of 3% of GDP, as stipulated under Act 850," the ministry said. Act 850 refers to the recently enacted Public Finance and Fiscal Responsibility Act 2023, aimed at providing provisions for the government’s fiscal responsibility, accountability, governance, and transparency in managing public finances and fiscal risks.

Nevertheless, the MOF said the increase in spending will be cushioned by encouraging revenue collection, particularly from indirect taxes, which has surpassed expectations, coupled with spending control measures.

The government revised its total revenue estimates to RM322.1 billion in 2024, or 16.5% of GDP, compared to the initial estimate of RM307.6 billion.

While the latest 2024 income tax projection of RM13.6 billion is lower than forecasted last year, this was offset by a RM17 billion upward projection in non-tax revenue, followed by indirect tax (RM5.4 billion higher) and other direct tax (RM5.7 billion higher).

As such, the ministry said no additional borrowing requirement has been projected for the year, as the fiscal deficit remains within the target of 4.3% of GDP.

"Several revenue enhancement measures announced in the Budget 2024 include increasing the service tax rate from 6% to 8%, introducing capital gains tax on net gain from the disposal of local companies' unlisted shares, and strengthening the tax administration and governance framework," it said.

For 2025, the government raised its total spending budget by 3.3% year-on-year to RM421 billion, or 20.2% of GDP, primarily due to higher emoluments and retirement charges, resulting from the implementation of the SSPA, as well as an increase in debt service charges. 

To support the spending, revenue is estimated to grow at a faster rate of 5.5% to RM339.7 billion, in tandem with a better economic outlook in 2025.

Fiscal deficit is targeted to reduce further to 3.8% of GDP in 2025, reflecting the government's ongoing commitment to fiscal consolidation.

"This reduction will provide ample fiscal space to cushion the impact of global uncertainties and alleviate debt burden over the long term," the MOF said.

Read also:
Budget 2025 to top RM400b for first time as robust growth provides leeway to splurge — economists

Click here to read more about the Economic Report 2024/2025.