Budget 2025 Seen Modestly Expansionary With Govt Trying To Balance Growth And Fiscal Consolidation

KUALA LUMPUR, Oct 20 (Bernama) -- Kenanga Investment Bank (Kenanga IB) sees Budget 2025 as modestly expansionary, with the government aiming to strike a balance between economic growth and fiscal consolidation.

The investment bank said it believes the move to reduce the fiscal deficit and overall debt-to-gross domestic product (GDP) ratio remains supportive of the domestic economy while ensuring minimal impact on people’s wellbeing despite undertaking a reforms agenda.

“The Finance Ministry (MOF) expects the fiscal deficit to narrow to 3.8 per cent in 2025, down from the 2024 forecast of 4.3 per cent. This aligns with our view that the government will pursue a measured and gradual approach to fiscal consolidation,” it said in a note today. 

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However, Kenanga IB considers the government’s aim of achieving a fiscal deficit of 3.5 per cent by 2025 as “overly optimistic. Easing the fiscal consolidation path could allow more room to support growth amid rising global uncertainty,” it said.

To boost revenue, the government is broadening the tax base with new taxes, including a tax on dividend incomes, a global minimum tax, and higher sugar duties.

The sales and service tax (SST) will be progressively expanded in May to include commercial services, non-essential goods and premium imports. E-invoicing for all taxpayers will be implemented by July 2025, while a carbon tax is set to launch by 2026.

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Overall, Kenanga IB said it believes the record-high allocation of RM421 billion for Budget 2025 underscores the government’s strategic commitment to addressing economic challenges, enhancing social programmes, and fostering growth. It shows the government's dedication to sustainable development and social wellbeing.

“The government aims to drive sustainable growth and innovation with strategic investments and targeted policies, including promoting green technology, energy efficiency, and supporting small and medium enterprises (SMEs) and mid-sized companies.

“These initiatives will encourage entrepreneurship among women and youth, and ensure agricultural resilience. Tourism, creative, and digital sectors will continue to receive backing, while key incentives will attract high-value investments and develop local talent,” it said.

It noted that the efforts aim to build a competitive, inclusive, and future-ready economy.

The government is also focused on enhancing social welfare, wages, and public services by raising the minimum wage, expanding salary policies, and extending social security coverage for the self-employed.

Major investments will support housing programmes, public infrastructure maintenance and child welfare. Public transport, including affordable passes and bus routes, will also be upgraded.

The MOF projects Malaysia's 2025 GDP growth at 4.5- 5.5 per cent, up from a revised target of 4.8-5.3 per cent. The growth target aligns with Kenanga IB’s estimate of 4.8 per cent (2024: 5.0 per cent) and falls within Bloomberg's consensus estimate of 4.6 per cent.

-- BERNAMA