Key Predictions and Market Focus for the Upcoming Budget 2025

The government's annual fiscal plan, Budget 2025, is set to be tabled by Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim on October 18.“With optimism, I anticipate that during the budget presentation on October 18, further enhancements to the economic framework will be unveiled, aiming to facilitate a more equitable distribution of accelerated economic growth among a wider population," he wrote on the X platform.

As anticipation builds for the forthcoming budget, economists are forecasting details and macroeconomic impacts. UOB anticipates that total government spending will rise by 1.7% to RM404.8 billion in 2025 from RM398 billion in 2024, driven by expected increases in operating expenditures (opex). TA Securities projects that Budget 2025 will allocate RM402.4 billion, divided into RM304.5 billion for operating expenses and RM97.9 billion for development expenses. Meanwhile, CIMB Securities forecasts that the fiscal deficit will narrow to 3.8% of the GDP in 2025, down from an estimated 4.3% this year, as government revenue growth is expected to surpass operating expenditures.

Here are the key predictions from major research institutions:

All eyes are on the government's plans to phase out the RON95 fuel subsidy and further details on its rationalization. This move is expected to help curb the continuous growth in operating expenses, as from 2010 to 2023, the compound annual growth rate (CAGR) for operating expenses was 5.7%, surpassing the annual revenue growth rate of 5.4% during the same period. The decline in oil prices and a stronger Malaysian ringgit provide an opportunity for rationalizing the RON95 subsidy.

UOB forecasts the implementation of further subsidy rationalization measures in 2025, including cutting subsidies for RON95 petrol; after implementing targeted diesel subsidies in Peninsular Malaysia, it plans to expand these to East Malaysia. Additionally, UOB is also watching for other subsidy revisions, including those related to food, such as subsidies for chicken, sugar, local white rice, and cooking oil. The World Bank has stated that Malaysia will need to remove the comprehensive national support for its most widely used petrol before this year to meet its subsidy expenditure targets.

Infrastructure development plays a crucial role in Malaysia's macroeconomic investment strategy. RHB Research forecasts that the development expenditure allocation will reach RM90 billion, aligning with the revised spending cap of the 12th Malaysia Plan. The transport sector is set to receive the majority of this funding, which will be channeled into key projects such as the Central Spine Road (CSR), East Coast Rail Link (ECRL), and Rapid Transit System (RTS).

As Putrajaya prepares to present Budget 2025 on October 18, efforts are underway to strengthen national finances and reduce the fiscal deficit. Tax experts largely anticipate that the Ministry of Finance (MoF) will not introduce new taxes in the upcoming budget. Instead, they expect an expansion of the scope of several previously introduced taxes. Additionally, there is an anticipation for more detailed clarification on newer initiatives such as e-invoicing. These measures are seen as crucial steps in enhancing revenue without imposing additional financial burdens on taxpayers, particularly during a time of economic recovery and inflationary pressures.

TA Securities Research predicts that government revenue will see a significant increase in 2025 due to several key tax initiatives. The firm particularly highlights the potential for increased revenue following a robust recovery in tourism activities.