Economic Focus: Budget 2025: Sharing prosperity with all

• Budget 2025 allocated RM421bn to achieve Madani Economy goals
• Delivery on reform promises well on track for long-term sustainability and inclusive growth
• Government's 2025 GDP growth projected at 4.5%-5.5% with lower budet deficit of 3.8%

Strong commitment for fiscal resilience

Budget 2025 entails a record high expenditre of RM421bn which 3.3% higher than the revised Budget 2024 estimate of RM407.5bn as Malaysia strives to achieve its socioeconomic goals under the Madani Economy Framework. 2025 development expenditure is expected to remain unchanged y-o-y while operating expenditure is projected to increase by 4.2% which is slower than the projected revenue growth of 5.5% in 2025. It is noteworthy that the relatively stronger revenue growth comes on the back of robust economic outlook and tax revenue broadening measures though PETRONAS dividend will be maintaned at RM32bn in 2025. Meanwhile, 2025 budget deficit accounted for ~64% of our gross domestic product (GDP), and it is likely to hover around the same level by end-2024 and 2025.

Ensuring fiscal reforms without comprising Rakyat's well-being

Budget 2025 continues to deliver on the government's reform initiatives to broaden tax revenue and implement targeted subsidy rationalisation. Notably, targeted subsidy for petrol is expected to be implemented in mid-2025 which could save RM8bn from the top 15% income earners and foreign consumers. In addition, various income tax reliefs on healthcare, education and insurance have been increased/extended to mitigate the impact of rising living cost. Meanwhile, allocation for direct cash assistance under Sumbangan Tunai Rahmah and Sumbangan Asas Rumah programs will be boosted by 30% to RM13bn (vs RM10bn in 2024), benefitting 9m recipients. More importantly, monthly minimum wage will be raised by 13% to RM1.7k from RM1.5k which will come in handy for low-income earners. For revenue base expansion, some of the new taxes include a 2% tax on dividend income and expansion of the sales and services tax. In short, the government has clearly showcased its commitment toward fiscal sustainability which will bode well for Malaysia's long-term development.

Targeted business incentives to encourage high value-add industries

Budget 2025 reaffirms the long-term strategies under the National Energy Transition Roadmap (NETR) and the New Industry Masterplan (NIMP) 2030 with tax incentives provided such as accelerated capital allowance for E-invoicing adoption, investment tax allowance for smart logistics and increased export incentive for IC design services. Also, National Energy Transition Facilitation Fund allocation is raised to RM300m from RM100m in 2024 while Green Technology Financing Scheme continues until 2026 with RM1b funding. In addition, tax relief on housing loan interest payments for first home ownership, which makes a comeback after 14 years, will benefit property developers. Budget 2025 makes no mention of the highly-anticipated mega projects susch as MRT 3 and KL-SG HSR but prioritises essential infrastructure in Sabah/Sarawak with a RM12.6bn allocation (vs RM12.4bn in 2024), illustrating its strong commitment for prudent fiscal policy.

Favourable economic landscape

The government has revised its 2024 GDP growth forecast to 4.8%-5.3% (from 4.0%-5.0%). Meanwhile, its 2025 GDP growth stands at 4.5%-5.5%. Fundamentals remain strong as Malaysia's economy continues to take comfort from its resilient domestic demand, underpinned by sustained household spending. Private investment is expected to benefit from improved external environment and positive response to the NETR and NIMP 2030 while the government continues with its expansionary fiscal policy to drive exonomic growth.

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