The 2025 Budget, tabled in Parliament on 18 October 2024, carries the theme "Revitalising the economy, generating change, prospering the Rakyat." It outlines a roadmap to drive sustainable growth and foster prosperity for all Malaysians. With targets set for GDP growth, inflation, and employment, as well as key policy changes around subsidies and taxes, the government aims to balance economic expansion with fiscal responsibility. Here's a closer look at the main highlights and what they imply for businesses and consumers in the coming year.
Economic Targets for 2025
The 2025 budget presents optimistic economic targets, including:
Real GDP growth of 4.5% - 5.5%: The government is aiming for robust growth, supported by continued recovery and economic initiatives. The target range reflects optimism in driving investment, domestic consumption, and external trade.
Headline inflation of 2.0% - 3.5%: By keeping inflation within this range, the government seeks to maintain price stability while allowing for some level of moderate price increases. Controlling inflation helps protect consumer purchasing power and ensures that economic growth is not overshadowed by rising living costs.
Unemployment rate of 3.1%: A low unemployment target indicates a focus on job creation and economic inclusivity. Near-full employment can enhance living standards and further stimulate economic activity.
These targets signal a balanced approach to economic development, with an emphasis on sustainable growth, price stability, and employment generation.
Budget Deficit and Public Debt
The 2025 budget projects a budget deficit of -3.8% of GDP, indicating that the government will continue to spend more than it earns. While this reflects ongoing fiscal challenges, the deficit is manageable and shows a commitment to balancing spending with revenue generation.
Meanwhile, federal government debt stands at 63.1% of GDP as of June 2024. This level of debt, while moderate, emphasizes the need for sustainable fiscal policies to manage borrowing costs and debt servicing. The government aims to reduce the fiscal burden gradually, while still supporting economic growth initiatives.
Minimum Wage Increase
A key social policy in the 2025 budget is the increase in the minimum wage from RM1,500 to RM1,700. This policy aims to improve the income and living standards of low-wage workers, enabling them to better cope with rising costs. Here are the expected impacts:
Increased income for workers: The higher minimum wage will directly benefit low-income earners, reducing poverty and potentially boosting domestic consumption.
Higher business costs: Employers, particularly small and medium-sized enterprises (SMEs), will face increased labor costs, which may be passed on to consumers in the form of higher prices.
Impact on employment: While the policy is intended to improve worker welfare, some businesses may limit hiring or turn to automation to offset higher wage expenses.
The wage increase aims to balance economic growth with social equity by raising living standards while also considering the potential economic adjustments needed by businesses.
Subsidy Rationalisation for RON95 Petrol
The government plans to rationalise subsidies for RON95 petrol starting mid-2025, marking a shift towards more targeted subsidy policies. Here's what this means:
Reducing fiscal burden: Fuel subsidies represent a significant portion of government spending. Rationalising these subsidies can free up resources for other public services and reduce the budget deficit.
Encouraging fuel efficiency: As subsidies are reduced, fuel prices may rise, encouraging consumers to use fuel more efficiently and consider alternative forms of transportation.
Targeted support for vulnerable groups: The government may implement measures to ensure that subsidies benefit lower-income households, making subsidy policies more equitable.
While subsidy rationalisation can lead to higher fuel prices, the policy is aimed at improving the efficiency of public spending and promoting sustainable economic practices.
Expansion of the Sales and Service Tax (SST)
Effective May 1, 2025, the Sales and Service Tax (SST) will be expanded to cover B2B commercial service transactions and non-essential food items. The implications are significant:
Increased government revenue: Broadening the tax base will help generate additional revenue, which can be used to fund infrastructure projects and social programs.
Impact on businesses: Companies engaging in B2B services, such as legal, IT, and logistics, will experience higher operating costs due to the new tax. These costs may be passed on to customers, potentially affecting the prices of goods and services.
Higher consumer prices: With non-essential food items also subject to SST, consumers may face higher costs for certain products. However, the government is likely to maintain exemptions for essential goods to mitigate the impact on lower-income households.
Expanding the SST to B2B transactions and selected consumer goods reflects a shift towards a broader tax base, aiming to make the tax system more comprehensive and fair.
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