KUALA LUMPUR: The government's spending on emoluments will remain the largest component of operating expenditure (OE) at 31 per cent or RM99.8 billion this year, the Economic Outlook 2025 said.
The allocation is an 8.6 per cent increase over 2023 and is attributed to early incentive payment of the public service remuneration system 2024 study for civil servants in February this year.
In August, the government announced the phased implementation of the public service remuneration system (SSPA) from December 2024.
This included among others revision to the services scheme, basic wage, allowances, benefits and pensions.
"The scheme, which was last reviewed in 2012, is a key component of the civil service reforms, aiming to enhance public service delivery and improve productivity among civil servants.
"This is in line with the 'Raising the Floor' thrust under the Ekonomi Madani framework to ensure quality of life of the rakyat," the report said.
Subsidies and social assistance are expected to decrease by 14.6 per cent, from RM71.9 billion to RM61.4 billion.
This will be primarily due to the continuation of electricity subsidy rationalisation and the targeting of diesel subsidy in addressing the issue of leakages.
The diesel subsidy has been rechannelled through the Budi Madani programme, which consist of widening the usage of fleet cards for selected logistics service provider under the Subsidised Diesel Control System (SKDS), as well as providing cash assistance to agri-commodity smallholders and eligible individuals.
In addition, the government enhances Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) to continue supporting the vulnerable groups.
Meanwhile, the report said the government continues to review the subsidy mechanism, demonstrating the ongoing commitment towards expenditure reform.
Debt service charges (DSC) constitute the third largest expenditure component, accounting for 15.8 per cent of the OE.
These charges are projected to increase by 9.6 per cent, reaching RM50.8 billion, attributed to elevated borrowing during the Covid-19 pandemic and the government's strategy to shift from short-term to long-term Instruments to improve the debt maturity profile.
"As a mandated item in the Federal Constitution, DSC takes precedence over other expenditure," it added.
Supplies and services are expected to grow by 9.2 per cent to RM39.2 billion, consistent with the government's commitment to deliver high- quality public services and infrastructure, benefitting the public and ensuring better access to essential services.
The expenditure primarily encompasses professional services, repair and maintenance, material supplies as well as telecommunication and utilities, which collectively represents 83 per cent of the total.
Among service delivery enhancements are the extension of counter services operating hours such as the Road Transport Department and National Registration Department as well as improvement of healthcare services through additional medical practitioners recruitment.
Retirement charges are projected to increase slightly by 1.1 per cent to RM34.4 billion corresponding with the growing number of pensioners and beneficiaries, which has reached almost 950,000.
In response to mitigate the burden of future pension liabilities, the government is exploring viable strategies to manage pension obligations effectively, while ensuring fiscal sustainability.
A total of RM15.6 billion or 4.9 per cent of OE is earmarked for grants to statutory bodies, particularly for emoluments as well as supplies and services, mainly towards public institutions of higher learning.
The allocation is 0.7 per cent lower as compared to 2023, as certain statutory bodies are capable of generating revenue to cover operating expenses.
"In order to have a more efficient, effective and agile public sector, a special committee has been formed to address issues of redundancy and relevancy among agencies and federal statutory bodies."
Additionally, grants and transfers to state governments are estimated at RM8.7 billion, with RM6.7 billion allocated for constitutional transfers as mandated by the federal constitution.