Malaysia unveils record RM470 billion spending plan for 2026
[KUALA LUMPUR] Malaysia said on Friday (Oct 10) that it plans to boost tax collection and strengthen social protection systems next year, as it looks to bolster government revenue amid external uncertainties.
Speaking in parliament, Prime Minister Anwar Ibrahim announced a budget of RM470 billion (S$144.3 billion) for 2026, a record figure that includes investments from some state-linked companies and statutory bodies.
The 2026 spending plan was revised sharply upwards from the RM419.2 billion proposed in a government report just ahead of Anwar’s speech on Friday.
Malaysia has maintained steady growth even though its exports have been hit by changes in US tariffs, but it needs to boost revenues to reduce its deficit and pursue the economic development goals unveiled in a five-year plan in July.
“We choose the winding, difficult path of reform, strict fiscal discipline and institutional strengthening, as the only path that ensures the nation is saved in the long run,” Anwar said.
Of the total, federal spending – comprising RM338.2 billion in operating expenditure and RM81 billion in development expenditure – amounts to RM419.2 billion, slightly below the RM421 billion allocated in 2025.
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With an additional RM50.8 billion from public-sector investments – RM30 billion from government-linked companies, RM10 billion via public-private partnerships, and RM10.8 billion from statutory bodies and ministerial-controlled companies – overall spending will rise to RM470 billion under the 2026 plan.
The country has maintained steady growth, though its exports have been hit by changes in US tariffs, but it needs to boost revenues to reduce its deficit and pursue the economic development goals unveiled in a five-year plan in July.
Since taking power in 2022, Prime Minister Anwar Ibrahim has introduced measures to bolster the government’s coffers, including a minimum wage hike, an expanded sales tax and the removing of petrol and diesel subsidies for some segments of the population.
He said in a foreword to the government’s fiscal outlook report: “It is only responsible for the government to carry out these reforms, especially at a time when fiscal discipline is critical to navigating rising external risks.”
New carbon levy, higher sin taxes
On Friday, Anwar also said the government would go ahead with a proposed carbon tax from next year, starting with the iron, steel and energy sectors. It would also raise excise duty rates on alcoholic beverages and tobacco from November, and fully implement e-invoicing next year to ensure better tax compliance, he said. The measures come as Malaysia looks to reduce its reliance on oil-based income.
State energy firm Petronas, a significant contributor to government revenues, will pay the government a dividend of RM20 billion in 2026, its lowest since 2017, in anticipation of moderating crude oil prices and lower petroleum-related output and revenue.
Deficit reduction on track
Amarjeet Singh, the Asean tax lead at EY, said the government’s tax-to-GDP ratio would increase to 17.4 per cent in 2026 from 12.6 per cent in 2025 under the latest measures, including those first introduced in the past two years, such as e-invoicing.
“All of this combined is facilitating these outcomes... which we will see the full impact of in 2026,” he said.
OCBC senior Asean economist Lavanya Venkateswaran described the budget as “a steadying of the fiscal ship”, with the government balancing various policy priorities in its fiscal consolidation efforts.
The government said it was on track to narrow its fiscal deficit to 3.5 per cent of GDP next year, with a medium-term deficit target of 3 per cent by 2028.
Revenue was seen rising to RM343.1 billion in 2026, while spending on subsidies and social assistance was projected to fall by 14.1 per cent to RM49 billion in 2026, the reports said.
Spending on subsidies and social assistance is projected to fall by 14.1 per cent to RM49 billion in 2026 from RM57.1 billion this year, due to lower commodity prices and the government’s efforts to deliver more targeted aid, the reports said.
Economic growth is forecast at 4 to 4.5 per cent in 2026. This year’s growth forecast was lowered to between 4 and 4.8 per cent from an initial estimate of 4.5 to 5.5 per cent in July, due to trade and tariff uncertainties. The US has imposed a 19 per cent tariff on most of Malaysia’s exports to the country.
Malaysia’s headline inflation is projected to remain manageable next year, at between 1.3 and 2 per cent, from a revised estimate of 1 to 2 per cent in 2025, the government said.
Despite global market volatility from ongoing tariff tensions and geopolitical risks, the government said Malaysia’s monetary policy remains supportive of the economy and would stimulate growth amid stable domestic prices.
Bank Negara Malaysia kept its benchmark interest rate at 2.75 per cent last month, after cutting it for the first time in five years in July; most analysts expect rates to hold until the end of the year. REUTERS, ADDITIONAL REPORTING BY THE BUSINESS TIMES
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