THE federal government is maintaining a steady path toward fiscal consolidation, guided by the Public Finance and Fiscal Responsibility Act 2023 (Act 850), as it balances fiscal discipline with the need to sustain economic growth and strengthen resilience.
Federal revenue for 2025 has been projected at RM334.1bil, or 16.6% of gross domestic product (GDP) – 2.9% higher than in 2024, though slightly below the earlier estimate of RM339.7bil.
Stronger tax collections from the revised sales and service tax (SST) and the phased rollout of e-invoicing has supported tax collection, while non-tax revenue can be expected to remain stable, anchored by investment income.
Total expenditure has also been recalibrated to RM412.1bil, a modest 1.6% increase from 2024 and lower than the previous estimate of RM421bil.
The government has set aside RM332.1bil for operating expenditure (OE), representing a 3.3% rise from last year, as it continues optimisation measures, including programme reprioritisation and the review of broad-based subsidies.
Meanwhile, development expenditure (DE) has been projected at RM80bil and remains above the annual 3% of GDP fiscal objective under Act 850.
As a result, the fiscal deficit can be expected to narrow to 3.8% of GDP in 2025, down from 4.1% in 2024, with gross borrowing requirements easing to support a more sustainable medium-term debt trajectory.
The government projects the primary deficit, excluding debt service charges, to improve to 1.1% of GDP.
Looking ahead, as the first budget under the Thirteenth Malaysia Plan (13MP), Budget 2026 would emphasise domestic economic drivers and private sector-led growth amid moderating external demand.
The government aims to balance fiscal consolidation with the need to stimulate investment, enhance social safety nets, and strengthen resilience through targeted spending and strategic reforms.
Total revenue for 2026 has been projected to rise to RM343.1bil, driven by higher direct and indirect tax collections.
The full-year impact of the expanded SST, coupled with ongoing tax digitalisation and the mandatory e-invoicing rollout for mid-sized businesses, can be expected to ensure more sustainable revenue streams.
However, non-tax revenue has been projected to moderate to RM72.7bil due to lower investment income.
Total expenditure has been budgeted at RM419.2bil or 19.7% of GDP, with OE increase moderating to RM338.2bil.
Fiscal measures such as the Government Procurement Act 2025 and the continued re-targeting of blanket subsidies can be expected to enhance efficiency and redirect resources toward high-impact social and development programmes.
As such, development expenditure allocations will rise to RM81bil to fund new initiatives under the 13MP.
The fiscal deficit is set to narrow further to 3.5% of GDP in 2026, with the primary deficit improving to 0.8%, underscoring the government’s commitment to prudent fiscal management.
Looking further ahead, under the medium-term fiscal framework (MTFF) 2026 to 2028, the government projects total revenue at RM1.07 trillion (15.7% of GDP), supported by higher non-petroleum revenue of RM943.1bil (13.8% of GDP) and moderating petroleum-related income of RM129.1bil (1.9% of GDP).
The MTFF assumes average real GDP growth of 4.9%, with crude oil prices projected to average US$70 per barrel and production between 450,000 and 500,000 barrels per day.
Total expenditure has been projected at RM1.29 trillion within the next three years, comprising RM1.05 trillion (15.4% of GDP) in OE and RM247bil (3.6% of GDP) in DE.
The fiscal deficit can be expected to average 3.2% of GDP over this period.
Overall, Malaysia remains on a steady path of fiscal consolidation guided by the Public Finance and Fiscal Responsibility Act 2023 (Act 850), balancing growth support with long-term sustainability.
The goal is to reduce the fiscal deficit to below 3% of GDP in 2028.
