With Budget 2026, due to be delivered on Oct 10, possibly the last chance for Prime Minister Anwar Ibrahim to make a significant impact on voter perception before the next election, what can he do to lay down his legacy?
First, the government can realistically afford to make SARA payments on a monthly basis instead of quarterly, without jeopardising fiscal health. There would be no issue for the government to switch the current STR/SARA to monthly payments using the existing budget of RM15 billion.
If the government wants to introduce the first genuinely universal basic income (UBI) with a monthly RM100 payment to 22 million adults, that would cost RM26.4 billion or an extra RM11.4 billion. This is also affordable and can be derived from the proceeds of the existing subsidy rationalisation, for example diesel savings of RM7.5 billion plus electricity savings of RM4 billion covers it.
RON95 savings are estimated at RM2.5 billion to RM4 billion so in addition to the RM7.5 billion from diesel and RM1.5 billion from other sources that also covers it.
Monthly payments potentially have a greater economic and social impact given that there would be higher consumption feeding business growth and indirectly more government revenue through tax collection.
In the current system the lump-sum payments tend to be spent immediately so there is a short-term impact. We have seen this with the latest example, with around a third of the SARA cash aid used in the first week by half of recipients.
However the regular payments would enable people to plan better, save some money in EPF for example or use the money in micro-enterprises. We have already seen many inspiring case studies of people using even the small amount to leverage long-term income through home-based businesses.
So in the case of monthly payments the consumption would be spread out so there is a slightly longer term impact than lump-sum payments which are spent quickly.
From a macroeconomic perspective, monthly payment is also a better option for fiscal management because it avoids spending hikes and an unusual impact on prices during the allocation period. It smoothens spending and helps manage economic volatility.
Second, the government can address the pension crisis with a basic pension of RM500 per month for 80% of retirees, excluding civil servants who already have a pension. This would help 2.4 million people and cost RM14.4 billion. To begin with, this can be covered by subsidy savings, and in the long-term by a new Malaysian Superfund.
Third, the government can help fix the funding crisis in higher education by introducing free higher education, following the example of Sarawak and which is now on the agenda in Sabah.
It would cost only RM2 billion to provide a RM10,000 grant to 200,000 private university students, putting them on an equal footing with public university students. This would relieve them of their debt burden, help regularise income for universities and address the ongoing instability in PTPTN loans.
A universal basic income, a basic pension and free higher education would cost just under RM28 billion which can mostly be achieved from the revenue from the subsidy rationalisation and the new SST rates which collectively raise RM27 billion.
However meaningful improvements in health spending, which would be a real legacy reform, would require new revenue sources to replace the RM 30 billion out-of-pocket expenses paid by patients directly to medical services providers with government purchase of these services making them free at the point of need.
These are the main pain-points in healthcare funding and this switch could be achieved by a 1% e-payments tax (EPT) which could raise RM28.8 billion.
The views expressed are those of the writer and do not necessarily reflect those of FMT.