PETALING JAYA: Tax compliance and expenditure governance are expected to take centre stage from 2026, as the government aims to sustain its fiscal consolidation momentum.
This came after 2025 marked the second consecutive year in which the actual budget deficit came in better than the official target – both in absolute terms and as a percentage of gross domestic product (GDP), said Maybank Investment Bank Research (Maybank IB).
The deficit stood at RM75.6bil, below the Budget 2025 forecast of RM80bil and the revised estimate of RM76.7bil – equivalent to 3.7% of GDP versus the target of 3.8%.
In 2024, the budget deficit to GDP ratio was 4.1%, better than the 4.3% target.
For 2026, the government aims to bring down further the budget deficit to GDP ratio to 3.5%.
The improved fiscal outcome has coincided with a stronger ringgit, supported by sustained net foreign buying of Malaysian bonds.
“We see tax compliance and expenditure governance as the focus from 2026 onwards,” the research house said, pointing to measures such as the ongoing phased implementation of e-invoicing and stamp duty compliance, plus the operationalisation of the Government Procurement Act 2025.
It did not expect the introduction of new taxes or increases to existing taxes this year.
It noted that revenue enhancements and expenditure recalibrations were the main focus in 2024 and 2025.
Sharing takeaways from the recent Malaysian Economic Forum, which was co-hosted by Maybank, it said about 17,800 businesses had yet to submit tax returns, representing RM1.4bil in unreported income.
Of this, about RM300mil in additional taxes had been collected.
On subsidy rationalisation, Maybank IB saw room to expand targeted measures to reduce leakages in other “legacy” subsidies, as well as to phase out subsidies that were originally intended as temporary, such as for sugar, which was costing the government RM42mil a month or RM0.5bil per year.
Looking ahead, this fiscal discipline bodes well for Malaysia’s sovereign credit profile.
Outperformance in the budget deficit-to-GDP ratio in 2024-2025 added credibility to the medium-term path toward the 3% target.
The research house said political stability, which underpins policy continuity and credibility, remains crucial as Malaysia enters the final stage of the current government’s five-year term.
One key fiscal metric, which could pose a challenge relates to the government’s total debt-to-GDP ratio, which stood at 65.3% at end-2025. This is above the 60% target and up from 60.1% at end-2022.
Beyond domestic considerations, external factors present risks.
However, US President Donald Trump’s recent move to impose global tariffs of 10% under Section 122 of the 1974 Trade Act, with plans to raise it to the maximum 15%, could increase uncertainty for export-oriented economies like Malaysia, said Anthony Dass, CEO of FSG Advisory and National Council Member of the SME Association of Malaysia.
“However, the country’s position remains structurally supported by its strong manufacturing ecosystem, particularly in semiconductor and intermediate component production,” Dass told StarBiz.
He said these sectors are deeply embedded in global supply chains and rely on specialised engineering capabilities, technical qualification, and operational reliability.
“As such, Malaysia’s higher-value manufacturing activities remain relatively resilient, although firms may face margin pressure in the near term.
“The country’s ability to maintain stability and policy consistency will also be central to sustaining investor confidence and preserving its role in global supply chains, Dass added.
