KUALA LUMPUR: Tight public finances will likely see a Budget 2025 that will focus on fiscal prudence, compassion for lower-income segments, commitment to reform, and clarity on initiatives to broaden the tax base.
RHB Investment Bank Bhd's analyst Alexander Chia said, as the 12th Malaysia Plan is entering the final year, he estimates 2025 net development expenditure at RM90 billion.
"Tight public finances indicate that the government will have little room for excesses. "We expect Budget 2025 – to be tabled on Oct 18 – to contain ingredients that encapsulate fiscal prudence, compassion for lower-income segments, commitment to reform, and clarity on initiatives to broaden the tax base," he said in a research note entitled Budget 2025 Preview: Impact On Sectors.
The nation's fiscal deficit target for 2025 could narrow down to 3.5 per cent from 4.3 per cent target in 2024.
Despite some progress on reforms, Chia said the government still has ample political capital to make further meaningful progress on subsidies and initiatives to broaden the tax base.
He said that wider tax base would further narrow the fiscal deficit, create headroom for infrastructure investments, and establish a pathway to contain the national debt.
"In this regard, the two key pending initiatives are subsidy rationalisation for RON95 petrol and reviving the goods and services tax (GST) that will dovetail with full implementation of e-invoicing," he added.
On Budget 2025 wish list, Chia noted that achieving the Madani Economy Framework will be a key focus – centred on creativity, competitiveness, digitalisation, artifical intelligence (AI) exploration and civil service reform.
He said the efforts to move Malaysia Inc up the value chain should involve proposals to facilitate foreign direct investment (FDI), streamline processes to eliminate excessive bureaucracy, productivity gains, automation, and talent development including funding for technical and vocational education and training (TVET) to upskill and reskill the workforce.
This includes incentives to broaden the progressive wage policy. He also has not ruled out excise duty hikes on tobacco and breweries, and will closely watch the allocations for infrastructure projects, with hoped-for clarity on MRT3.
According to Chia, the macroeconomic backdrop remains positive, bolstered by the US Fed's aggressive monetary policy pivot that will facilitate a soft landing for the global economy.
"Business and investor sentiment will tick up, while the stronger ringgit will be a net positive for corporate earnings. Equities should be well supported by the pooling of domestic liquidity, coupled with renewed interest from foreign portfolio funds," he added.
He noted that the firm maintain "overweight" rating on the banking, property, construction, technology, healthcare, basic materials, oil and gas (O&G), utilities and rubber products sectors, as well as FBM KLCI target of 1,720 points at the end of this year.