Malaysian budget 2027: PM Anwar tables record spending as he enters final stretch before next GE

KUALA LUMPUR – Prime Minister Anwar Ibrahim tabled on Oct 9 an expansionary budget as he enters the final year of a tumultuous term as Malaysia’s leader, which has seen his Pakatan Harapan (PH) coalition ceding ground not just to the opposition but want-away ally UMNO. 

The proposed spending of RM459.8 billion (S$144 billion) for 2027 – marking a record budget for Malaysia to date – is nearly 10% more than the RM419.2 billion outlined for 2026, signalling a push to boost the economy typical of an “election budget”. The next general election must be held by February 2028.

Anwar zeroed in on cost of living as a priority in his budget speech, saying it “was the main issue burdening the public”.

To that end, he announced that the allocation for subsidies, aid and incentives for 2027 would breach RM80 billion. This includes cash aid totalling RM16 billion, which would reach 13 million Malaysians, including middle-income earners.

“The government acknowledges the anxiety of the middle class, who have been patient despite also being pressed by the burden of living costs,” he said, before announcing an increase in individual tax relief to RM12,000 from RM9,000 currently.

Coupled with a 1 percentage point reduction in the tax rate for the RM70,000 to RM150,000 taxable income brackets, this would save around five million taxpayers up to RM1,600 each in 2027.

However, the tax rate for income beyond RM1 million will be set at a unified 30%. Previously, it was 28% for the RM1 million to RM2 million income bracket, and 30% for income exceeding RM2 million.

Anwar, who is also finance minister, added that the monthly minimum wage would be raised to RM2,000 from the existing RM1,700 from June 2027 for all businesses with more than RM50 million annual revenue. About four million workers will benefit from the new wage floor.

An estimated 1.3 million civil servants outside the top pay grades will also receive a one-time bonus of RM1,500, while a million public sector retirees will get RM750 at a total cost of nearly RM3 billion.

That Anwar had brought forward to Sept 1 an increase in subsidised fuel quotas originally meant to be announced in Budget 2027 was a clear signal, said analysts, that “the political calendar is shorter than the official deadline” for the 16th general election (GE).

“A government willing to break its own budget sequencing for a measure this cheap is optimising for the calendar, not the ledger,” Kenanga Investment Bank said in a pre-budget report issued on Sept 21.

The government expects growth to moderate to between 4.2% and 5.2% in 2027, from 4.8% to 5.3% in 2026 and 5.2% in 2025. 

Much of the Budget 2027 increase is set to be paid from a rise in both income tax (RM199.9 billion, 4.6% higher) and the sales and services tax (up 9.5% to RM73.3 billion). The SST consumption levy has progressively captured more items since Anwar took power in 2022.

“What the budget has shown is that it is really attempting to trickle down the economic benefit,” said independent economist Nadia Jalil, formerly regional head of economic and market analysis at CIMB.

“What we hope to see is the money that comes to the public will be spent on the domestic economy because consumption is the largest portion of our economy.”

The projected fiscal deficit for 2027 will drop to 3.3% of gross domestic product, down from 3.6% for 2026 and 3.7% in 2025.

The Anwar administration had planned for a 3.5% deficit for 2026, but soaring fuel prices pushed the fuel subsidy bill to RM40 billion, pushing total expenditure to RM444.1 billion.

The subsidy bill is expected to decline slightly in 2027 as the government rolls out further targeting mechanisms, which have so far seen subsidised fuel quotas being rolled out since 2024.

Some RM83 billion has been earmarked for development expenditure in Budget 2027, a modest increase from the RM81 billion for 2026.

Anwar’s ruling partner, UMNO, which leads the Barisan Nasional (BN) coalition, has since September openly called for early polls despite the GE not due for nearly 18 months.

Anwar could table another budget at the end of 2027, but his government would not be able to implement it beyond the first few weeks of 2028.

Defeating Budget 2027 would be the most direct way to force a snap election, but BN’s 30 MPs alone will not be enough to deprive Anwar of a parliamentary majority. Besides BN, the government has 119 MPs in the 222-strong Chamber, with four seats vacant.

UMNO’s push, backed by Parti Islam SeMalaysia (PAS), the nation’s largest party, comes after a torrid year for PH. Anwar’s coalition has suffered losses in three consecutive state elections, in Sabah in November, Johor in July and Negeri Sembilan in August, where the UMNO-PAS Malay Unity electoral pact secured a two-thirds supermajority.

The next two states to hold elections are Melaka on Nov 14 and Sarawak, which is due by April.

Ahead of the Melaka vote, Anwar unveiled in Budget 2027 a slew of initiatives aimed at bumiputeras, a term grouping together the Malay majority and various indigenous tribes.

Aside from newly gazetted Malay reserve land in the capital Kuala Lumpur worth over RM1 billion, the Prime Minister also earmarked RM7.5 billion in government procurement reserved for bumiputera contractors, nearly double the RM4 billion in 2026.

Some RM3.5 billion in funding for bumiputera businesses was also announced. This is in addition to a targeted RM58 billion in procurement by state-linked entities, including national oil giant Petronas, from bumiputera firms.

“The middle class emerges as a major beneficiary, but (the budget’s) breadth is striking – almost every segment of society stands to benefit in some way, accepting realities such as dominance of artificial intelligence, ageing society, stagnant wage,” KRA Group strategic director Amir Fareed Rahim told The Straits Times.

“Anwar is setting the battle lines for the next GE, and pushing through his idea of social justice – the basis of his Parti Keadilan Rakyat’s political struggles.”