Budget 2026 To Prioritise Fiscal Consolidation, Reform And Good Governance - OCBC Bank
KUALA LUMPUR, Sept 17 (Bernama) -- The upcoming Budget 2026 is expected to continue focusing on modest fiscal consolidation even as external headwinds build, according to OCBC Bank.
In a note today, the bank said the government will focus on fiscal governance, modernising public finance through technology and stepping up GovTech initiatives to drive reform and good governance.
It expects these objectives to translate into revenue, expenditure and deficit targets for Budget 2026 in line with medium-term fiscal targets.
"The 13 Malaysia Plan (MP), passed in Parliament on Sept 3, 2025, reaffirms the government’s commitment to reduce the fiscal deficit to below three per cent of the gross domestic product (GDP) and the public debt to GDP ratio to under 60 per cent by 2030.
"These medium-term commitments were set out in the Public Finance and Fiscal Responsibility Act 2023 (FRA)," it said.
According to the bank, it sees revenue growth of 6-7 per cent year-on-year (y-o-y) supported mainly by tax revenue collections, which are still likely to outpace nominal GDP growth, at close to 10 per cent y-o-y.
"Our 2026 GDP growth forecast is 3.8 per cent y-o-y from 3.9 per cent in 2025. We expect revenue growth to be supported by reforms enacted so far, including the broadening of the sales and services tax base and the full adoption of e-invoicing across all companies.
"Continued efforts towards digitalisation and efficiency improvements will bolster revenue collections," it added.
OCBC Bank also highlighted that the government said it would introduce a carbon tax in 2026 in the previous Budget 2025.
"Given the government’s focus on boosting public health services, incremental hikes to ‘sin’ products such as alcohol and tobacco cannot be ruled out. Higher tax rates for these products can be used to cross-subsidise healthcare priorities," it said.
The bank also said the government is unlikely to explore reintroducing the goods and services tax (GST) in Budget 2026 in view of the external headwinds.
"However, if it is (explored), we would view it as a positive development," it added.
On subsidy rationalisation, the bank expects the government to press ahead with a targeted approach.
"The finer details of the RON95 rationalisation, to be announced end-September 2025, will determine the extent of fiscal savings and the impact on inflation in the coming months, but importantly, 2026," it noted.
-- BERNAMA