Malaysia's Upcoming Budget: Anticipated Subsidy Cuts and New Taxes

As Malaysia prepares to unveil its 2025 budget, analysts predict significant subsidy cuts and the introduction of new taxes to bolster its fiscal position amid expected declines in government revenue. Prime Minister Anwar Ibrahim will announce this spending plan in parliament on Friday, aiming to balance fiscal consolidation with economic growth while addressing rising living costs.

Key Tax Initiatives

Experts anticipate the implementation of a tax on high-value goods and a tax on sugar-sweetened beverages, originally proposed in the previous budget. However, calls for reintroducing a broad-based Goods and Services Tax (GST) appear to be dismissed, as the government braces for lower dividends from Petroliam Nasional Berhad (Petronas). Petronas, a major revenue source for the federal government, is expected to face income pressures due to declining crude oil prices.

Projected Economic Outlook

Under the 2024 budget, Petronas is projected to contribute 32 billion ringgit (approximately $7.45 billion) in dividends, down from 40 billion ringgit in 2023. Chief Economist Mohd Afzanizam Abdul Rashid highlights that ongoing low crude oil prices may challenge Petronas's ability to maintain substantial dividend payouts.

The government is likely to adjust its economic growth forecast for 2024 to a range of 4.5% to 5.1%, up from 4% to 5%. The central bank supports this outlook, projecting growth at the upper end of its estimates, while inflation is not expected to exceed 3%.

Fiscal Policy Changes

Budget 2025 is also expected to include adjustments to subsidies for RON95 petrol, sugar, and domestic rice, aligning with the government's shift towards targeted subsidies aimed at supporting low-income households. Analysts predict that the fiscal deficit will narrow to 3.5% to 3.9% of GDP, down from an estimated 4.3% in 2024, due to these subsidy reductions.