2025 marks Prime Minister Anwar Ibrahim’s second full year in office, making it a crucial period for his administration to showcase its economic direction. The clearest reflection of his plans for Malaysia is the 2025 National Budget, unveiled on October 18, 2024, with a total allocation of 421 billion Malaysian Ringgit (RM). The budget is centered around the theme “Reinvigorating the Economy, Driving Reforms, and Prospering the Rakyat.” It focuses on balancing fiscal consolidation with economic expansion, aiming to sustain growth while ensuring responsible financial management.
Malaysia’s Economic Outlook for 2025
Malaysia’s economic fundamentals remain strong, despite global uncertainties. In 2024, GDP growth was estimated at 5.05%, one of the highest in Southeast Asia. For 2025, the government projects GDP growth between 4.5% and 5.5%, keeping Malaysia among the region’s fastest-growing economies. However, inflation is expected to rise, meaning that the cost of goods and services will increase compared to 2024.
One of the major contributors to inflation is Anwar’s Subsidy Rationalization Policy. The government plans to reduce broad-based subsidies—particularly on fuel and electricity—and shift to targeted subsidies for low-income households. This move will result in higher costs for upper-income households and businesses but will ensure that financial assistance reaches those who need it most.
Malaysia’s Fiscal Management: Reducing Debt and Deficit
One of the standout features of the 2025 budget is its commitment to reducing public debt and narrowing the fiscal deficit. The budget aims to bring the fiscal deficit down to 3.8% of GDP, a significant improvement compared to 2023 and 2024. This is a result of controlled government spending and enhanced revenue collection measures.
How Is Malaysia Funding Its Budget?
The government plans to generate 421 billion RM to fund its expenditures, with revenue sources including:
- Income Tax – 41.8% (largest contributor)
- Indirect Taxes (SST, Customs Duties, Excise Duties) – 16.7%
- Non-Tax Revenues (Dividends, Petronas contributions, other fees) – 19.2%
- Government Borrowings and Asset Use – 19.2%
While borrowing is still part of the budget, the reduced fiscal deficit means that Malaysia is moving toward greater financial sustainability.
Key Changes in Malaysia’s Tax System for 2025
To enhance revenue collection while ensuring fairness, the government is introducing several new taxation measures:
1. Dividend Tax on Individual Shareholders
- A 2% tax on dividend income for individuals earning over RM100,000 annually from dividends.
- This measure ensures progressive taxation, targeting higher-income groups while protecting lower-income citizens.
2. Expansion of the Sales and Services Tax (SST)
- Luxury Goods Tax: Premium imports like avocados and salmon may face higher taxes, while essential goods remain exempt.
- B2B Commercial Transactions: Business-to-business services (e.g., fee-based financial services) will now be taxed.
- Global Minimum Tax for Multinational Corporations: Malaysia will implement a minimum tax rate for large multinational firms in line with global standards.
Subsidy Rationalization: Who Gets Them and Who Doesn’t?
Anwar’s subsidy rationalization policy is designed to phase out blanket subsidies and introduce targeted assistance. Some of the biggest changes include:
1. RON95 Petrol Subsidy Reform
- Fuel subsidies will no longer be available to foreigners and high-income groups.
- The move is expected to save billions of ringgit annually, funds that will be redirected toward public welfare programs.
2. Education and Healthcare Subsidy Adjustments
- High-income households will see reduced government assistance for public schools and hospitals.
- Meanwhile, low-income groups will receive enhanced cash handouts and social assistance programs.
Development Expenditure: Investing in Malaysia’s Future
Despite efforts to reduce overall government spending, the 2025 budget includes significant allocations for economic and social development:
- Economic Investments: RM39.9 billion to be spent on agriculture, environment, transportation, and infrastructure.
- Social Development: Funds allocated for education, housing, and public welfare.
- However, the share of GDP spent on development projects is decreasing, signaling a more cautious fiscal approach.
Social Measures and Workforce Empowerment
The 2025 budget includes several initiatives aimed at improving the standard of living for Malaysians:
1. Minimum Wage Increase
- The national minimum wage will rise from RM1,500 to RM1,700 per month, providing relief amid rising living costs.
2. First-Time Homebuyer Tax Relief
- Individuals purchasing homes below RM500,000 can claim up to RM7,000 per year in tax relief.
- Those buying homes priced between RM500,001 and RM750,000 are eligible for RM5,000 per year in tax relief.
3. Increased Medical and Insurance Tax Relief
- The tax relief for medical and insurance premiums will increase from RM3,000 to RM4,000, easing financial burdens on families.
Conclusion: A Bold but Necessary Budget
Anwar Ibrahim’s 2025 National Budget is one of the most ambitious and transformative Malaysia has seen in years. It aims to restructure the subsidy system, improve fiscal responsibility, reduce government debt, and strengthen the economy. While these reforms may cause short-term discomfort—particularly for high-income groups and businesses—they are designed to ensure long-term economic stability and prosperity.
Ultimately, the success of this budget will depend on its implementation and the government’s ability to manage economic challenges effectively. What do you think about Malaysia’s 2025 budget? Will these changes help the country move forward? Let us know your thoughts!