KUALA LUMPUR (Oct 9): After four years of asking Malaysians to endure subsidy rationalisation and other painful reforms, Prime Minister Datuk Seri Anwar Ibrahim is now loosening the government’s purse strings as his administration nears the end of the term.
Framing his fifth budget as a Waad Nasional, or national covenant, between the government and the people, Anwar is seeking to distribute the fruits of economic reforms through larger cash handouts, personal income tax reliefs and an increase in minimum wage.
"As reform presses on without fear, the fruits of growth, and every ringgit saved through reform, must return to the rakyat as greater benefits," Anwar told the Dewan Rakyat on Friday.
Budget 2027 carries a total federal allocation of RM459.8 billion, comprising RM376.8 billion in operating expenditure and RM83 billion in development expenditure.
The government is tapping into the massive state-owned firms as well as public-private partnerships and federal statutory bodies for an off-budget spending fillip totalling RM50.8 billion next year.
The government is setting aside more than RM80 billion for subsidies, assistance and incentives next year, nearly matching the RM83 billion earmarked for the entire development expenditure.
Among the major measures is an increase in allocations for Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (Sara) to RM16 billion from RM15 billion, alongside wider personal income tax relief and a higher minimum wage of RM2,000 from RM1,700, effective June 2027.
Under the expanded STR and Sara programmes, up to nine million STR recipients will receive Sara assistance of up to RM150 a month, while other Malaysians aged 18 and above will receive RM100 on two occasions next year, including those in the middle-income group.
The government is also raising the basic personal income tax relief to RM12,000 from RM9,000 and reducing tax rates by one percentage-point for the chargeable income bands of RM70,000 to RM100,000, and RM100,000 to RM150,000 — measures that will release RM1,600 in disposable income to about five million taxpayers.
Economists see the budget as an attempt to balance the political imperative of easing cost-of-living pressures with continued commitment to fiscal consolidation.
Election budget
The additional spending made economic sense given the challenging external environment and the need to sustain weaker than expected private consumption growth, said AmBank Group chief economist Firdaos Rosli.
"The government has done the fiscal reform side, and now maybe it's time to see how much of that reform can take shape in terms of people's well-being," he told The Edge, noting that governments naturally tended to spend more in the second half of their political cycle.
Nevertheless, the government appears to be staying on course with fiscal consolidation, said Professor Yeah Kim Leng, director of economic studies at the Jeffrey Cheah Institute on Southeast Asia at Sunway University.
“There's no blowout in terms of excessive or undisciplined spending despite the possible election that is coming,” Yeah said.
Inflation has remained relatively benign thanks to subsidies and price control that help to shield households and small businesses even as other economies are reeling from spikes in global prices as the Iran war raged on.
The political undertones were evident in the Dewan Rakyat, as Anwar delivered his roughly two-hour budget speech in a light blue baju Melayu, matching PKR’s party colour. Several fellow PKR lawmakers, such as communications minister Datuk Seri Fahmi Fadzil and Home Minister Datuk Seri Saifuddin Nasution Ismail, were also noticeably similarly dressed in light blue baju Melayu.
Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi, who was seated beside Anwar in BN’s royal blue baju Melayu, was seen pouring water into the prime minister's glass midway through the speech.
The 16th General Election must be held by February 2028, unless an earlier dissolution paves the way for snap polls.
Affordability
Firdaos expressed confidence in the government's revenue projections, saying stronger collections and additional contributions from Petroliam Nasional Bhd (Petronas) provided room for additional spending.
"I think in terms of affordability, perhaps they can, because the revenue side is actually quite convincing as well," he said.
Federal revenue for 2026 has been revised upwards to RM363.6 billion from the original estimate of RM343.1 billion, while collections are projected to rise further to RM380.8 billion next year.
Similarly, Yeah said the government's fiscal position remained manageable as long as economic growth continued broadly in line with projections, while the RM40 billion allocation for fuel subsidies could be clawed back if the conflict in West Asia subsides and oil prices normalise.
Such savings could then be redirected towards more productive expenditure, including education, healthcare and infrastructure, which offered greater economic multiplier effects, he added.
However, OCBC senior Asean economist Lavanya Venkateswaran was more cautious about the government's ability to deliver the projected deficit reduction.
"It remains to be seen whether this fiscal consolidation can be achieved," she said, warning that external volatility and intensifying domestic political pressures could complicate the government's plans.
Malaysia is aiming to shrink its long-running budget hole as the government has been spending more than it earns every year since the 1997-1998 Asian Financial Crisis. The target is to narrow the fiscal deficit, as a percentage of economic output, to 3.3% next year from 3.6% projected for this year.
However, the gap in state finances could exceed the government's 2027 target by 0.2 to 0.3 percentage-point amid persistent expenditure and revenue growth pressures, Venkateswaran flagged.
Still, in concluding his budget speech, Anwar returned to the idea of Waad Nasional, describing it as a promise that the country's resources would benefit the people while ensuring a better future for subsequent generations.
“We do not build a nation for a single fiscal year. We built it for a generation. And the task of a generation is not merely to enjoy what it has inherited, but to enlarge what it will bequeath,” he said.