Malaysia’s newly released 2025 budget, the largest in its history, seeks to cut subsidies, narrow the fiscal deficit and bolster the economy’s competitiveness while addressing demands for higher wages and improved social welfare.
Prime Minister Anwar Ibrahim on Friday presented the 421 billion ringgit (US$98 billion) budget plan for 2025, saying it aimed to grow the country’s appeal as a preferred destination for hi-tech investments while also uplifting the country’s most vulnerable groups.
The government expects to bring its total subsidy bill down by 14.4 per cent to 52.6 billion ringgit in 2025 in the first full year of revised electricity and diesel prices, after subsidies for the two items were slashed earlier this year.
This includes the introduction of targeted subsidies for RON95 petrol by mid-2025 to exclude an estimated 15 per cent of total users who are either rich or non-Malaysians, saving an estimated 8 billion ringgit.
“The savings will be used for the well-being of the masses,” Anwar said in his budget speech, adding that the government would maintain 12 billion ringgit in petrol subsidies.
Malaysia’s fiscal deficit is expected to narrow to 3.8 per cent of gross domestic product in 2025, down from 4.3 per cent forecast for this year. Its total debt stood at more than 1.2 billion ringgit or 63.1 per cent of GDP as of June this year.
Besides slashing subsidies, the government will look to grow its revenue through a review of the sales and services tax.
From May 1 next year, the government will impose sales tax on premium imported foodstuff such as salmon and avocados, and also broaden the services tax to cover commercial services such as fee-based financial ones.
The government will also pursue greater tax collections from the rich, with a progressive tax planned for dividend earnings exceeding 100,000 ringgit by private investors.
Sugary canned drinks will cost more from January, when the sugar excise duty will be nearly doubled to 90 sen per litre, as part of the government’s “war on sugar”.
To soften the blow from deepening subsidy cuts, the government raised the allocation for its cash aid programme by 30 per cent to 13 billion ringgit, benefiting 9 million low-income individuals and households.
The government will also raise the wage floor by 200 ringgit to 1,700 ringgit, and issue salary guidelines to set the standard for reasonable starting wages across industries.
The record spending package will also include salary hikes of between 16.8 per cent and 42.7 per cent for the country’s 1.6 million-strong civil service and pension payouts for more than 950,000 government pensioners and beneficiaries.
“The government is mindful in their approach to ensure the fiscal deficits will be gradually reduced,” said Mohd Afzanizam Abdul Rashid, chief economist with Bank Muamalat.
Anwar’s budget – the first time the national spending has breached 400 billion ringgit – will focus on two key themes of business and welfare.
To grow the economy, the government has set aside 40 billion ringgit in business loans and funding guarantees to help small and medium-sized enterprises expand their businesses through development of everything from infrastructure and digitalisation to renewable energy and energy transition.
It is also planning tax incentives and exemptions to boost high-value investments in areas such as integrated circuit design and advanced materials, and the adoption of carbon capture utilisation and storage and energy-efficient technology.
Education will get the largest allocation at 64.1 billion ringgit, including nearly 8 billion ringgit to maintain and refurbish schools. The funds will also go towards building new schools, improving rural infrastructure and broadband access, and extending additional food plans and assistance for poor students.
A total of 45.3 billion ringgit will go to healthcare, part of which will be used to expand healthcare access for underserved communities, especially in rural areas.
Defence and internal security will get a budget of 40.7 billion ringgit combined to boost national security and crime-fighting capabilities.
Julia Goh, a senior economist with Singapore bank UOB, said the new budget was extensive and comprehensive, and aimed to “rebalance, restructure and reform the economy in a more sustainable and inclusive manner”.
Malaysia expects the economy to grow by 4.5 per cent to 5.5 per cent in 2025, accelerating from the projected 4.8 per cent to 5.3 per cent pace for this year.
Total revenue for 2025 is estimated to grow by 5.5 per cent to 339.7 billion ringgit, driven primarily by increases in direct and indirect tax collections.
Government coffers will get a boost of 32 billion ringgit next year from the annual dividend payout by national energy giant Petronas.
The ringgit currency strengthened 7.5 per cent against the US dollar as of end-August this year, rising sharply from the 3.3 per cent decline over the same period in 2023.
The government expects the ringgit to continue to perform well next year on sustained investor confidence in Malaysia’s economy.
Source: South China Morning Post
