In a statement, the Institute for Democracy and Economic Affairs (IDEAS) said it welcomed the 2025 budget for its efforts to address key socio-economic challenges while promoting equitable growth, sound fiscal policies and sustainable development.
IDEAS said the budget showed a commitment to reducing the fiscal deficit, which is projected to decrease from 4.3% in 2024 to 3.8% in 2025.
However, it noted that Malaysia’s debt burden is increasing, with debt servicing costs expected to rise by 7.7%, reaching RM54.7 billion.
It said that while the 2025 budget outlines several steps to increase revenue collection, the real challenge lies in ensuring the country’s revenue base is widened, especially considering the low tax revenue-to-GDP ratio projected at 12.4% in 2025 — which is lower than upper middle-income countries of 18.8%.
IDEAS acting CEO Aira Azhari said the government’s “cautious approach” to revenue generation in the 2025 budget has resulted in relatively minor tax measures, such as the expansion of the sales and services tax (SST) to include non-essential items that were previously exempted and a 2% dividend tax for individual shareholders with annual dividend income exceeding RM100,000.
Aira said that while these measures are steps in the right direction, they are unlikely to boost government revenue significantly.
“Given our strong economic performance, with a GDP growth rate of 5.9% in Q2 2024, low inflation, robust wage growth and a low unemployment rate, this is an ideal time for the government to implement broader revenue-raising measures or substantially reduce subsidies,” she said.
“The minor tax adjustments and modest subsidy rationalisation represent a missed opportunity and raise concerns about the government’s ability to achieve its Public Finance and Fiscal Responsibility Act-mandated fiscal targets (of a 3% fiscal deficit).
“It is important to remember that the amount of money needed to provide for the people’s basic needs is significant and there will be a time when the government will need to introduce new taxes to sustain its spending,” she added.
Other measures in the 2025 budget to widen the tax base include a global minimum tax on multinational enterprises; a carbon tax on the iron, steel and energy industries; and a rise in the excise duties on sugary drinks.
Aira said that initiatives like carbon pricing in the iron and steel industry will not only encourage decarbonisation but also position Malaysia favourably in international trade, especially with the European Union.