PETALING JAYA: With clear frameworks like the soon-to-be enforced Fiscal Responsibility Act (FRA), digital transformation, and ongoing reforms, Malaysia is on track to enhance fiscal discipline, optimise resource allocation, and rebuild public trust in government efficiency.
The Fiscal Responsibility Act (FRA), which is expected to be enforced soon, provides a legal framework for maintaining fiscal discipline by capping fiscal deficits within manageable levels.
Malaysia's projected fiscal deficit for 2025 is 3.8% of gross domestic product (GDP), down from an estimated 4.3% in 2024, indicating a gradual consolidation process.
According to a MARC Ratings Bhd spokesperson, the combination of expenditure optimisation and the broadening of the tax base will continue to support fiscal consolidation efforts.
“Measures such as subsidy rationalisation for fuels, Employees Provident Fund-based retirement schemes for civil servants, and enhancement of the tax system (for example, Global Minimum Tax, dividend tax and the sales taxes on premium goods) are expected to support sustainable fiscal management.
“Additionally, the adoption of e-invoicing would also reduce tax leakages in Malaysia. Going forward, the implementation of a consumption-based tax, such as a value-added tax or goods and services tax can further strengthen the government’s fiscal position,” he said.
The spokesperson believes the implementation of the new public service remuneration system in December together with ongoing fiscal reforms, is a positive step toward improving government operations.
“However, attention must be given to overlapping government programmes, such as the possible integration of data from the existing OpenDOSM platform with the upcoming Phase 2 implementation of GovTech (PADU).
“Redundancies in web sources and platforms may hinder efficiency, creating duplication of work across ministries. Coordination between agencies is therefore crucial to streamline processes, consolidate expenditures, and enhance efficiency.
“Furthermore, a reasonable degree of decentralising state public finances can improve service delivery by enabling faster project approvals and fund disbursements, and also allow states to address localised needs more effectively,” he said.
Meanwhile, the government’s approach to provide targeted subsidies may have positive macroeconomic effects if fiscal reforms have the net effect of channelling more resources to the less wealthy sections of the population that have a higher propensity to spend.
However, it can be challenging balancing fiscal consolidation with social spending in the face of rising public expectations.
Also, while the Budget 2025’s commitment to fiscal consolidation is good, an overall strategy to achieve it may not be evident.
According to Dr Carmelo Ferlito, chief executive officer of Centre for Market Education, the government’s commitment to achieve a target deficit of 3.8% in 2025 is lauded, although a clear strategy about how to get there is not clear.
Similarly, he said the increase in the tax revenue base is a welcomed move, but noted that there was only a very general reference to a broader Sales and Service Tax (SST), which is promised to be more progressive.
“Clarity, however, is needed on what are the non-essential goods in the mind of the government -- apart from salmon and avocados, the only goods mentioned in the (Budget) speech,” Ferlito added.
He said there is a new reference to the targeted fuel subsidies, but after years of discussion, no clear indication of how the mechanism will work has been presented.
“Targeted subsidies for public services are good plans -- if they open the door to completely redesign the system of the provision of government goods and services.
“The government should either outsource that provision (and thus achieve the provision of more targeted services with lower management costs) or provide them at market prices, with different shades of discounts according to the income bracket,” Ferlito explained.
He pointed out that Budget 2025’s measures, despite a clear commitment to fiscal consolidation, seemed to contradict that perspective. In particular, a rationalisation of spending is missing.
“While the sweeter note in the budget is the emphasis on the need of fiscal consolidation and the commitment to reduce fiscal deficit, the implementation is difficult to imagine in the overall strategy. While lauding the commitment, some points remain obscure with regard to fiscal discipline.
“The Budget is the biggest ever. At the same time, developing expenditures have been cut, while a bigger share of the budget is devoted to operational expenditures,” Ferlito said.
