PUTRAJAYA: Feedback from the tabling of Budget 2025 is still coming in as households and businesses digest the key measures and initiatives that, in essence, will help the government balance the fiscal deficit while at the same time, ensure that aid is given to the deserving and economic growth is supported.
While reiterating the government’s commitment to the reforms under the Madani Economy framework, Treasury secretary general Datuk Johan Mahmood Merican, the top civil servant in the Finance Ministry, explained to StarBiz that the “directional shift” taking place in policies aims to secure a fairer share for ordinary wage earners and the disadvantaged.
He said there were no plans to reintroduce the Goods and Services Tax (GST), which was implemented from April 2015 to June 2018, due to its regressive nature that would disproportionately affect the lower income brackets.
“The Prime Minister would be the first to admit that GST is more transparent and efficient, but he believes very much in a progressive approach to taxation and that where incomes are currently, it is not the right time,” Johan said.
He said equitability has been the theme across Budget 2024 and Budget 2025 and sums up the government’s concern for social justice where, despite misgivings from the business community and the better-off, the move to rationalise the diesel subsidy and adjust electricity and water tariffs were steps to address where aid should be more efficiently deployed.
Johan noted that in the case of the electricity tariff, only the most prolific users among households were affected, with 85% able to enjoy the rebate.
“We found that the top 10% were consuming half of the subsidy as they were the largest consumers of electricity. We were able to generate RM4bil in savings from the adjustment,” he said.
The same approach has been taken for the diesel subsidy rationalisation, where Johan shared that the savings from the move has been better than expected, at RM600mil a month.
“Aid will be given to those who need it while eligible businesses have been issued fleet cards. A similar approach will be crafted when we rationalise the RON95 petrol subsidy,” he said.
Similarly, as subsidies become targeted, employers now have to raise the minimum wage to RM1,700 per month from RM1,500 previously, while the government revised the civil service pay.
Johan admitted that the minimum wage remains below what would be considered a living wage in Malaysia.
“It is one of the targets of the Madani Economy framework to increase the labour share of income. We are also working with the Human Resources Ministry to solve the problem of how the minimum wage has been used as a benchmark to pay fresh graduates.
“To level the playing field at the lower income brackets, foreign migrant workers now come under the Employees Provident Fund social protection umbrella,” he said.
The need to widen the tax base remains a priority as the government’s operating expenditure continues to rise, while revenue cannot keep pace. Under Budget 2025, a 2% tax on dividend income exceeding RM100,000 has been proposed, which Johan said reflects the government’s approach to progressive taxation as it applies to the wealthy, as was the capital gains tax on disposal of unlisted shares in Malaysian companies introduced in Budget 2024.
“Similar to the debate over GST versus the Sales and Service Tax (SST), the Prime Minister is very clear that he is committed to reforms.
“We need to widen our tax base and reduce subsidies but he is also a big believer that this needs to be done in a progressive way, that’s why the government started with tax on dividends,” he said.
As for the broadening of the SST, he said the government would be engaging with businesses to determine the final list, which it hopes to finalise by early next year and have it implemented by May.
Commenting on the tax on avocado and salmon mentioned during the Budget 2025 tabling, Johan said the intention was to highlight that imported luxury goods would be taxed.
“We should have said caviar and lobsters instead,” he quipped.
Given the limited resources at hand, the government believes that the wealthy should contribute their fair share and that means subsidies should be distributed on a needs basis, which Johan assured would also cover middle-income earners.
“We can afford to continue giving subsidies, we just need to address the leakages and that means the subsidies cannot go to the wealthy, big businesses and foreigners,” he said.
Besides the wealthy, the government has also mobilised the government-linked investment companies (GLICs) and government-linked companies (GLCs) to help spur economic growth, as well as a top-up to the allocation for development expenditure, which the government borrows to fund but have to monitor due to the need to reduce the fiscal deficit.
“This move is very practical. We’re working with the GLICs where we are asking them to look at how they can increase the weightage of their strategic asset allocation for domestic direct investments. “For example, Khazanah Nasional Bhd’s RM1bil national fund-of-funds focusing on startups,” Johan said, adding that the GLICs and GLCs would be supporting basic infrastructure development as well as nurturing high-growth industries.
GLCs have also been asked to see how they can align their mandates as commercial entities to support the ambitions as set down in the Madani Economy framework and in line with the National Energy Transition Roadmap and the New Industrial Master Plan 2030.
“Investors are increasingly asking us about renewable energy sources and due to the cost involved in building the infrastructure, the GLCs will have to play a role in supporting where we are steering the economy towards. We don’t see this as crowding out the private sector as a lot of capital is involved,” he said.
“It’s a question of getting there. The government is committed and we’re finalising everything and hope to announce it in due course, including the income classification criteria.
“More importantly, the government wants to reassure the people that if they fall under the income eligibility criteria, they will still continue to receive subsidies,” Johan said.
