Malaysia has spent years laying the foundations for a modern industrial economy. Budget 2027 should now focus on a different challenge: lifting productivity across the economy.

Over the past decade, economic policy has rightly prioritised attracting investment, encouraging digitalisation, strengthening infrastructure and building economic resilience. 

These efforts have delivered important gains. Fiscal consolidation has progressed, investment remains resilient and the economy has continued to adapt to a challenging global environment.

However, Malaysia's next economic challenge is raising productivity. Future improvements in living standards will increasingly depend on stronger productivity growth.

Investment creates potential. Productivity determines whether that potential is converted into higher wages, stronger businesses, better public services and rising living standards. 

As Malaysia faces population ageing, tighter fiscal constraints and intensifying international competition, generating more from existing labour, capital and technology resources will become essential.

This is particularly important for Malaysia's micro, small and medium enterprises (MSMEs), which contribute approximately 40% of gross domestic product (GDP) and employ almost half of the workforce. Raising productivity across this segment of the economy would therefore generate benefits across the broader economy.

Yet productivity is often treated as a technology problem when capability is just as important.

CPA Australia's Asia-Pacific Small Business Survey consistently finds that high-growth small businesses are more likely to focus on strategic planning, management capability and professional advice than other businesses. Technology matters, but so does leadership, planning, workforce capability and sound business decision-making. 

Businesses with stronger management capability are often better positioned to derive value from their investments.

Artificial intelligence (AI) provides a useful example.

Much of today's discussion focuses on AI adoption. Yet adopting a technology does not in itself lead to improvements in business performance. Success should not be measured by how many businesses are experimenting with AI, but by how effectively they are using it to improve decision-making, increase efficiency, enhance customer outcomes and drive business performance.

Malaysia has already made significant investments in digitalisation and is actively encouraging AI adoption. The next challenge is ensuring businesses have the capability, skills and organisational readiness required to implement these technologies effectively. 

This is where Budget 2027 can shift the conversation.

Malaysia does not lack business-support initiatives funded by taxpayers. The country already has a wide range of government measures to improve competitiveness, capability and business performance.

The more important question is not how many programmes exist, but whether they deliver measurable results.

Many policy discussions naturally focus on inputs. How much funding has been allocated? How many businesses received support? How many firms adopted a particular technology?

These are useful indicators, but they do not necessarily tell us whether businesses are improving. A business that receives a grant is not automatically more productive. Likewise, technology adoption does not automatically translate into stronger business performance.

Success should increasingly be judged by outcomes. Are businesses becoming more productive? Are they exporting more? Are wages increasing? Are firms becoming more profitable?

If a programme is successful, there should be evidence of better business performance, improved workforce capability, higher wages, greater export participation, increased private-sector investment or higher profits.

This matters because Malaysia’s next phase of economic development will depend less on the quantity of investment and more on the quality of outcomes generated from it.

A productivity lens should also be applied to broader economic reforms.

Subsidy rationalisation, for example, should be viewed as more than a fiscal exercise. Its long-term success will depend on whether savings are redirected towards investments that strengthen productivity, support economic resilience and improve living standards. 

Similarly, digitalisation and AI initiatives should be judged not only by adoption rates, but by their contribution to business performance and economic outcomes.

In many areas, Malaysia already has strong policy foundations in place. The challenge is not a shortage of programmes. It is ensuring existing investments, reforms and support mechanisms translate into stronger productivity growth.

The country has demonstrated that it can attract investment, implement reforms and build economic resilience. The next stage of development will depend on how effectively these efforts translate into stronger competitiveness and sustainable improvements in living standards.

If there is one question policymakers should ask when assessing any Budget measure, it is:

Malaysia does not need a longer list of new initiatives in this Budget. It needs policies that help businesses become more productive, workers more skilled and the economy more competitive.

Azfar Asa’ad is CPA Australia’s senior adviser in business, investment and international.