KUALA LUMPUR: The 2025 Budget that will be tabled today may spring some big surprises as the government continues to stimulate and catalyse Malaysia's economic growth and keep its finances in check.
There may be clarity on the RON95 petrol subsidy rationalisation and further subsidy cuts, especially for electricity.
There may be new taxes, including for high-value goods, which was mooted in the previous budget, and for sugar-sweetened beverages. There are also rumours that the Goods and Services Tax (GST) may return to replace the Sales and Service Tax (SST).
A GST revival is unlikely when Prime Minister Datuk Seri Anwar Ibrahim presents the budget in Parliament today.
Sources say the GST can be a solution for much of the government's fiscal woes, but it has its drawbacks — it can be regressive as it puts the poor at a greater disadvantage.
They say the budget will provide assistance for the people and small and medium businesses to alleviate the rising cost of living and operating costs.
The government must remain responsible and not be reckless despite the improving economic outlook this year and in 2025, they say.
Malaysia's gross domestic product (GDP) grew 5.1 per cent in the first six months of the year, after growing 5.9 per cent in the second quarter to follow up on the 4.2 per cent expansion in the first three months.
This was fuelled by robust domestic demand, a strong recovery in exports and a thriving tourism sector.
Given the country's economic resilience, there are high chances that the government will revise the GDP growth forecast for the year to higher than the official four to five per cent.
This will be the prime minister's second full budget and it could be the toughest one thus far for his administration, industry observers say.
For one, there is a need to reduce government debt to a more sustainable level.
Up to June, the overall government debt stood at RM1.23 trillion, or 63.1 per cent of the GDP.
The statutory government debt is likely to register at 62 per cent of the GDP this year, below the limit of 65 per cent, but above the 60 per cent threshold. The Fiscal Responsibility Act mandates that the debt level must be below 60 per cent in the medium term.
Then, there is the fiscal deficit issue.
The country's fiscal deficit missed the 3.5 to 3.0 per cent target set during the mid-term review of the 12th Malaysia Plan and is expected to reach 4.3 per cent of the GDP, or RM84 billion, this year.
CGS International economists Nazmi Idrus and Mas Aida Che Mansor said the miss reflected the government's struggle to keep its finances in check.
This comes amid expectations of lower revenue collection next year and lower dividends from Petronas, as well as a jump in spending on emoluments following civil servant pay hikes.
The economists said the government had limited low-hanging choices for revenue enhancements and was pressured by higher spending commitments.
"The options are clear, but not necessarily easy. Either raise revenue or find ways to cut spending. Either option could negatively affect the consumer base.
"As such, we think the main element for this budget is how the government addresses its fiscal constraints but also formulates a mitigating measure to minimise the impact on the lower-income group, regardless of what is announced," they said recently.
Still, government revenue is expected to be higher this year and in 2025 than in 2023. But this may mean higher expenditure for next year.
Bank Muamalat chief economist Dr Mohd Afzanizam Abdul Rashid said this year had seen the implementation of several fiscal consolidation measures.
They included the increase in SST to eight per cent from six per cent, diesel subsidy rationalisation and e-invoicing.
"I believe these fiscal consolidation steps have yielded results, opening up a lot of fiscal policy space.
"This means that, in terms of revenue, the collection might be higher and spending is optimised, creating more room for the government to plan the budget for the coming year.
"With such conditions, the government can allocate a larger budget next year to further expand all sectors of the economy, ensuring that groups like the B40 and others benefit."
He said in general, the budget's focus would be broad.
"In terms of social security, programmes like cash transfers will be maintained. There's also a possibility of increasing the allocation and expanding the scope to include the M40 group.
"That might be something to consider, as well as how the government encourages more private sector investment.
"There may be more tax incentives to encourage companies to invest, especially in areas like energy transition."
In 2024, the government allocated RM393.8 billion for expenditure. The figure will likely be revised higher when the 2025 Budget is presented.
Of the RM393.8 billion, operating expenditure accounted for RM303.8 billion, with the bulk of spending going to emoluments following the revision of civil servant salaries as well as a hike in pension payments.
The balance of about RM90 billion went to development expenditure to finance infrastructure projects, among others.
Overall, the 2025 Budget may continue the government's focus on economic reforms to make Malaysia more competitive and attractive for investments, and at the same time, enhance the rakyat's livelihoods and standard of living.
"The gist of the 2025 Budget is to realise the Ekonomi Madani by raising the ceiling in encouraging competitiveness and quality investments and raising the floor in improving the rakyat's livelihoods and social protection," a source said.
The government aimed to create a prosperous future for Malaysians by fostering a competitive and innovative economy, improving public sector efficiency and promoting social equity, the source said.