— RAJA FAISAL HISHAN/The Star
PETALING JAYA: CGS International Research (CGSI Research) believes that among the key points to watch out for in the upcoming Budget 2026 speech are details on a carbon tax and its implementation.
Another two points worth looking out for are further plans for subsidy reforms, such as for cooking oil and diesel and cash handouts and social support policies.
The research house also predicts that government debt will start showing a turnaround with the ratio falling to 63% of gross domestic product (GDP) next year versus its estimate at 64% for this year, on the back of an improved overall fiscal balance projection.
The research house said this projected turnaround marks a significant step in government fiscal consolidation.
“With Malaysia entering the second half of its election term, we think the focus for the government has turned towards fine-tuning policies.
“Much of the heavy lifting has been done over the past several years, and the government is likely to ride these reforms for its fiscal consolidation efforts.
“As such, we expect no major tax surprises. That said, we think reform momentum will continue in the areas of governance, wealth disparity, wages, economic competitiveness, and green transition,” CGSI Research added.
The research house said it anticipates the deficit consolidating further to 3.4% of GDP next year versus a projected 3.8% this year, even in the absence of major tax announcements
“The improvement reflects potentially higher revenue collection amid past tax measures, such as the expansion of the sales and service tax as well as lower growth in development expenditure and subsidy allocation,” it said.
CGSI Research pointed out that in the buildup to the budget tabling, the government has dropped several hints as to the measures that it is looking to introduce.
The research house said the 13th Malaysia Plan tabled in July served as a major guide alongside several recent parliamentary responses.
Among them are the possibility of extending pro-health taxes to include tobacco, vapes, and alcohol, likely in the form of higher excise duty rates.
CGSI Research added that an earlier commitment to introduce a carbon tax could take centre stage following the scaling back of energy subsidies this year, but it expected the government to start small in terms of the tax.
It also expects a shift in housing policy towards a build-then-sell model versus the currentl sell-then-build to limit cases of abandoned housing projects.
Other anticipated measures include labour reforms to continue with the second phase of civil servant pay adjustments, as well as a drive to raise the retirement age and reduce the number of foreign workers.
The research house also believes Visit Malaysia Year 2026 could include incentives such as tax breaks or cheaper loans to encourage higher private-sector participation.
Meanwhile, it said it expects the government to trim loose ends having tackled the major subsidy reforms.
“These could include diesel distribution in Sabah and Sarawak, as well as leakage in subsidised cooking oil and subsidised diesel meant for the fisheries industries.
“The government may also heed to public calls for sugar subsidies for manufacturers to be recalibrated in line with the pro-health objectives,” it added.
