The Star
6 October 2025
New initiatives in the pipeline
Drone shot of Merdeka 118 tower for Federal Territory (FT) Day or to be use in future. — IZZRAFIQ ALIAS/The Star
PETALING JAYA: The upcoming Budget 2026, the first under the 13th Malaysia Plan (13MP), is expected to roll out initiatives that will help corporate Malaysia to narrow its fiscal deficit, while strengthening its economic growth trajectory and competitiveness amid global headwinds.
All eyes will be on Putrajaya this Friday, as the Madani government unveils Budget 2026.
RHB Banking Group chief economist Barnabas Ganinti
RHB Banking Group chief economist Barnabas Gan told StarBiz that Budget 2026 is likely to demonstrate a firm grip on the nation’s finances.
“We expect the government to keep the deficit near 3.5% of gross domestic product, with a path towards reducing it below 3% by 2030.
“Rather than introducing broad, new taxes, adjustments may come through targeted measures.
“A likely option is the increase of the service tax from 6% to 8% in selected sectors such as restaurants and telecommunications, potentially generating an additional RM5bil annually.
He said helping Malaysians cope with rising prices and easing the rakyat’s cost of living is expected to remain central themes of Budget 2026 too.
Gan said direct aid programmes such as Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah may see larger allocations, exceeding RM13bil committed this year.
Further clarity on the RON95 subsidy rationalisation is anticipated, following the nationwide rollout of the Budi Madani (Budi95 ) system in September.
Under this scheme, eligible Malaysians receive up to 300 litres of RON95 petrol monthly at RM1.99 per litre via their MyKad. Budget 2026 may fine-tune and expand the programme to ensure smoother implementation nationwide, he noted.
Among others, Gan said housing measures are also likely, especially for the bottom 40 (B40) and middle (M40) groups.
He expects tax reliefs to increase to RM7,000 for affordable homes and RM5,000 for mid-range properties, while rent-to-own schemes and home loan guarantees could make home ownership more attainable, especially for gig workers and those without formal income.
Gan said: “A second pillar of the budget will be strengthening Malaysia’s long-term competitiveness.
“With greater savings and revenue, the government is likely to allocate around RM86bil to 89bil for development expenditure, with priority given to highways, flood mitigation, rural roads, and upgrade to air and rail connectivity.
“Strategic sectors are also set to gain policy support.
“We expect allocations on sectors that can attract investments like renewable energy, electronics, high-tech manufacturing, agriculture, and Islamic finance.
“Malaysia’s rare earth reserves, worth an estimated RM747bil, may see greater policy focus through incentives for local processing in states such as Pahang and Perak,” he said.
Gan said plans are underway to nearly double electrical and electronics (E&E) exports to RM1 trillion by 2030, aligned with the National Semiconductor Strategy, which is designed to position Malaysia as a key player in the global semiconductor value chain.
He said Islamic finance may see a further policy boost, including green Islamic bonds (sukuk) and new funds to further strengthen Malaysia’s leadership in Shariah-compliant products, among other initiatives.
“Sustainability is set to be a defining pillar of Budget 2026. We anticipate reaffirmation of Malaysia’s renewable energy targets – 31% of the country’s energy from renewables by 2025, rising to 40% by 2035.
“Incentives for solar, wind, and biomass projects may be scaled up, supported by the National Energy Transition Facility.
RAM Rating Services Bhd senior economist and head of economic research Woon Khai Jhek
Woon Khai Jhek, who is the senior economist at RAM Rating Services Bhd, said the upcoming Budget 2026 will be an important fiscal plan as it is the first under the 13MP, and it must balance structural reforms with social protection.
“One key focal point is the government’s ongoing efforts to widen the tax base and reduce expenditure. Following the expansion of the sales and service tax regime, attention will be on whether the government introduces more revenue measures.
“This could include further adjustments to existing tax structures e.g. further widening of the scope for SST or measures like a carbon tax that were mooted in the past.
Woon said any further adjustments to the subsidy regime and targeting of such subsidy support will be of interest to the general public.
Following the groundwork laid with the recent mechanism launch of the MyKad-based verification for RON95 petrol subsidy eligibility, he said the public will be keenly watching for the specifics of the rollout.
Currently, it is blanket-based for all Malaysians. The question is whether there will be any further tightening of eligibility criteria to better target lower-income households and further help reduce fiscal strain, he said.
“We anticipate that the total budgeted expenditure for Budget 2026 will at least match, if not slightly exceed, the allocation in Budget 2025.
He said the budget is expected to solidify support for the high-growth and high-value (HGHV) sectors, aligning with the New Industrial Master Plan 2030 (NIMP 2030) and other roadmaps (e.g. National Energy Transition Roadmap, National Semiconductor Strategy).
Woon said Malaysia’s fiscal credibility and deficit trajectory are also something that is closely watched, particularly among international investors.
He said international investors place high importance on Malaysia’s fiscal health and its commitment to fiscal consolidation.
They will scrutinise the budget for clear medium-term anchors, in particular the deficit reduction trajectory and the timelines to achieve them,” he said.
“Our preliminary estimation places total budgeted expenditure in the range of RM420bil to RM450bil, up from the RM421bil allocated in Budget 2025. The bulk of the spending allocation will likely still be in operating expenditure,” Woon noted.
He said the government has consistently reaffirmed its commitment to the medium-term fiscal framework, aiming to narrow the fiscal deficit to below 3% of GDP by 2030, as reiterated in the 13MP. He said this objective anchors RAM’s projections.
So far, he said the governments appear to be on track to reach their target by 2030, assuming revenue collection holds up and there are no large new spending shocks.
“The government currently targets the fiscal deficit to fall to 3.8% of GDP in 2025, from the 4.1% recorded in 2024.
“We expect the fiscal deficit to continue narrowing to about 3.6% of GDP in 2026. With continued progress on subsidy rationalisation, sustained tax revenue collection, and disciplined expenditure control, we expect the fiscal deficit to continue on its narrowing path,” Woon said.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid
On a separate note, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said he hopes Budget 2026 would offer more allocations for Syarikat Jaminan Pembiayaan Perniagaan (SJPP) as more financial guarantees are needed to facilitate small and medium enterprise (SME) financing.
He said the guarantees would also provide comfort for the banking sector in respect to credit risk for the SMEs as this would improve access to credit.
He said tax incentives to promote social sukuk issued by cooperatives is also an important area. To this end, he said there could be an exemption to stamp duties which would reduce the cost of issuance.
“As for investors who invest in social sukuk issued by cooperatives, their income from such incentives could be exempted from tax. That way, there will be more social sukuk issuances by the cooperatives, and the investment banks at the same time can help to structure the sukuk.
“This will help cooperatives to raise their capital which will be used to finance their business and will benefit its members.
“Furthermore, as cooperatives require capital, tax incentives to promote the social sukuk issuance under Budget 2026 will help cooperatives to address their long term capital needs.
“With cooperatives financing needs addressed, it will promote the third sector of the economy which will complement the public and private sector in developing the country’s economy,” Mohd Afzanizam said.
(Web Source: https://www.thestar.com.my/business/business-news/2025/10/06/new-initiatives-in-the-pipeline)