BUDGET 2027 must balance support for households and businesses with stronger fiscal resilience, with the Government urged to broaden its revenue base, rein in volatile fuel subsidies and reverse declining development spending, the Institute for Democracy and Economic Affairs (IDEAS) said.
The think tank said the Budget, to be tabled on Oct 9, should use the immediate pressures from the West Asia energy shock as an opportunity to strengthen Malaysia’s fiscal position and prepare for future crises.
It said Malaysia needed a credible roadmap for comprehensive tax reform, noting that federal tax revenue was only about 12.8% of gross domestic product (GDP) in 2025 and is projected at 12.7% this year.
IDEAS added Budget 2027 should examine reforms covering consumption, wealth, capital, property and income taxes, while considering the strongest features of the goods and services tax (GST), including a broad base, effective input-tax credits and stronger digital administration.
However, it stressed that any consumption tax reform must be accompanied by better-targeted relief for lower-income households and small businesses.
Fuel subsidies should also be placed on a more predictable footing, IDEAS said, after the monthly subsidy bill rose from about RM700 million in January and February 2026 to as much as RM7.5 billion in April.
Total fuel subsidy spending could reach RM40 billion this year, more than double the RM15 billion initially allocated under Budget 2026.
IDEAS proposed linking subsidised fuel prices and quotas more systematically to global oil prices, including a managed float if fuel-specific subsidies are retained.
It said targeted assistance such as Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) could instead be expanded to protect households most affected by higher prices.
“Any savings generated from subsidy rationalisation should also be transparently reported,” it said in a recent release.
At the same time, Budget 2027 should reverse the decline in federal development expenditure.
Development spending has fallen from RM90 billion in Budget 2024 to RM86 billion in 2025 and RM81 billion in 2026.
IDEAS said higher productive development expenditure was needed to support investments in renewable energy, electricity grids and other infrastructure required for Malaysia’s energy transition.
The National Energy Transition Roadmap estimates that RM1.2 trillion to RM1.3 trillion in investment will be required by 2050.
The think tank also called for clearer and more predictable rules governing PETRONAS dividends, proposing a base dividend linked to profitability and a multi-year oil price benchmark, with supplementary dividends during periods of exceptional profitability.
It said the methodology and assumptions should be disclosed in Budget documents.
IDEAS further urged the Government to distinguish conventional federal expenditure from investments by government-linked companies (GLCs), government-linked investment companies (GLICs), Federal Statutory Bodies and MOF Inc companies.
It said combining such investments with taxpayer-funded expenditure could obscure the Government’s underlying fiscal position.
Budget 2027 should disclose who is providing funds, the financing arrangements, expected economic and social outcomes and subsequent performance of such investments, it said.
On transparency, IDEAS said Malaysia scored 51 out of 100 for budget transparency in the Open Budget Survey 2025, below the 61-point benchmark for informed public debate.
Its public participation score was 20, compared with 33 for Indonesia and 28 for Thailand.
IDEAS called for Budget 2027 to provide greater public access to information throughout the budget cycle, including clearer reporting on extra-budgetary funds, contingent liabilities, assets, borrowing, debt and actual spending outcomes.
It also proposed combining broad public submissions with topic-specific Public Consultation Papers and publishing a summary of public feedback and how it influenced the final Budget.
Beyond fiscal policy, IDEAS said Budget 2027 should focus on ensuring that major investment initiatives generate measurable economic benefits.
Data centres, for example, accounted for about 44% of approved investments in the first half of 2026. IDEAS said the Government should strengthen post-approval monitoring to assess their employment, local procurement, economic spillovers and electricity and water consumption.
It also called for greater scrutiny of investments under the New Investment Framework, with emphasis on high-value jobs, wages, technology transfer, research and development and productivity rather than simply the value of approved projects.
For households and businesses, IDEAS said Budget 2027 should simplify overlapping support programmes for MSMEs, strengthen productivity-enhancing digitalisation and improve access to financing. It also called for sustained investment in healthcare, social protection and public services as Malaysia prepares for an ageing population.
IDEAS said these measures would help Budget 2027 meet the MADANI Government’s twin objectives of supporting the rakyat amid rising living costs and strengthening Malaysia’s longer-term growth and resilience. - October 5, 2026
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