By Danial Azhar and Ashley Tang
KUALA LUMPUR (Reuters) -Malaysia will introduce a slew of new taxes, cut subsidies for a widely used fuel, and raise the minimum wage from next year, Prime Minister Anwar Ibrahim said on Friday as he announced a record budget spending plan of 421 billion ringgit ($98 billion).
Anwar said the government was on track to narrow the deficit to 3.8% of gross domestic product (GDP) next year from an estimated 4.3% in 2024.
“Next year, the fiscal reforms will be more aggressive and inclusive, with the progressive expansion of tax revenue and the targeting of subsidies for those most in need,” Anwar, who is also finance minister, told parliament.
Since taking office in 2022, Anwar has sought to trim a hefty subsidy bill and improve tax collections to reduce dependency on oil and gas revenues, with a medium-term goal of cutting the fiscal deficit to 3% of GDP.
This year the government cut blanket subsidies for diesel, electricity, and chicken, among others, as it moves to a targeted approach that mainly helps the needy.
Anwar said on Friday that policy would be extended to the RON95 transport fuel in the middle of 2025.
On the revenue side, the government will progressively expand the sales and services tax from next May, widening it to include commercial services, non-essential goods and premium imports such as salmon and avocados, Anwar said.
It has proposed a tax on dividend incomes above 100,000 ringgit at a rate of 2% and to enforce a global minimum tax from next year.
Excise duties on sugary drinks will be raised in stages from January to help reduce national obesity and diabetes rates, while a carbon tax on the iron, steel and energy industries will be implemented by 2026, Anwar said.
Savings from the tax and subsidy adjustments will be channeled towards education and healthcare, while cash aid for 9 million low-income individuals will be increased to 13 billion ringgit next year from 10 billion ringgit in 2024, he said.
Anwar also announced wider tax relief measures for first-time homeowners, education and health insurance premiums, among others.
Budget papers released before Anwar spoke showed 52.6 billion ringgit was allocated for subsidies and social assistance in 2025, down 14.4% from this year.
The government however did not announce plans to revive an unpopular goods and services tax (GST), which some analysts have said was necessary for the government to hit its fiscal targets.
OCBC Senior ASEAN Economist Lavanya Venkateswaran said the GST “will likely be required at some point for fiscal consolidation”.
“More importantly, if targeted RON95 subsidy rationalisation does not yield the anticipated fiscal savings, the door should remain open to eliminating these subsidies altogether,” she said in a note after the budget announcement.
PROGRESSIVE WAGE POLICY IN 2025
Anwar also announced plans to enforce a progressive wage policy from next year.
The minimum wage will be increased to 1,700 ringgit per month from 1,500 per month from February 2025.
The budget reports forecast federal revenue rising 5.5% to 339.7 billion ringgit in 2025 from 322.1 billion ringgit this year.
The 2025 spending, up 3.3% on this year’s 407.5 billion ringgit spending, includes development expenditure of 86 billion ringgit and operating expenditure of 335 billion ringgit.
Operating expenditure, which makes up nearly 80% of the budget, will rise 4.2% from 2024, primarily driven by a public service restructuring that will see pay hikes and salary adjustments for 1.6 million government employees, the reports said.
State energy firm Petronas will pay the government a dividend of 32 billion ringgit in 2025, unchanged from this year, in anticipation of declining petroleum-related output and revenue.
The government expects the economy to expand 4.5%-5.5% in 2025. This year’s growth forecast was raised to 4.8%-5.3%, from 4%-5% previously, the reports showed.
The government said headline inflation was projected to remain manageable next year at between 2% to 3.5%, up from this year’s revised estimate of 1.5% to 2.5%.
($1 = 4.3070 ringgit)
(Reporting by Rozanna Latiff, Danial Azhar and Ashley Tang; Editing by John Mair and Hugh Lawson)
