Petaling Jaya: According to economists, Budget 2026 is fiscally conservative, given the government’s limited fiscal space, investment in long-term capacity building and short-term support for vulnerable sectors.
Imran Nerginias Ibrahim, chief economist at BIMB Securities, said the budget comes across as a cautious and politically constrained plan.
“Although the government highlights fiscal prudence and a modest reduction in the deficit, the overall tone seems defensive rather than transformative,” he said. Sunbiz,
Having lost opportunities to pursue deep structural reforms in 2024 and 2025, the government now faces the pressure of a tight fiscal position and impending elections, Imran said, starting with Sabah later this year.
“As a result, the government has adopted a more cautious approach while adjusting development expenditure to keep the fiscal deficit within the target.”
Imran said the budget fundamentally seeks to maintain growth momentum and balance fiscal discipline, but lacks bold policy changes or new growth catalysts. “The measures announced are inclined towards short-term social protection and sustainability rather than strategic reforms that can enhance Malaysia’s long-term competitiveness.”
Lavanya Venkateshwaran, senior ASEAN economist at OCBC, said Budget 2026 signals a steadying of the fiscal ship, with the government maintaining a cautious pace of consolidation while balancing social and economic priorities.
“The government has doubled fiscal consolidation, aiming to reduce the deficit from 3.8% in 2025 to 3.5% of GDP in 2026. This is in line with our expectations and reflects a modest pace of consolidation,” he said.
He said the government’s macro assumptions were “quite realistic”, with real GDP growth projected at 4.0-4.5% (OCBC: 3.8%) and headline inflation at 1.3-2.0% (OCBC: 1.5%).
“Tax revenue collections are expected to grow broadly in line with nominal GDP, while non-tax revenues are likely to decline due to lower global commodity prices and lower dividends from Petronas,” he said.
New tax measures, including higher excise duties on cigarettes and alcoholic beverages from November 2025 and the introduction of a carbon tax targeting the iron, steel and energy sectors, were expected, he said.
Central government expenditure is expected to increase marginally next year due to higher emoluments and pensions. Subsidy and social assistance spending is expected to decline by 14.2% year-on-year in 2026 as the government continues rationalization efforts, although Rahama cash contributions and cash assistance programs Sumbangan Asas Rahmah Will remain as is.
Lavanya said the budget also highlights measures to boost medium-term growth, including support for SMEs expanding overseas, regional development in Johor, Sabah and Sarawak, local tourism and high value-added manufacturing in sectors such as electronics.
“Thus, although fiscal support for economic growth from Budget 2026 onwards is largely neutral, Budget 2026 reaffirms governments’ commitment to pursuing reforms and building domestic economic resilience to counter external headwinds,” she said.
Dr Andrew Voon, senior lecturer at Monash University Malaysia School of Business, said that although Malaysia’s Budget 2026 is small in size, the government’s focus on human capital and high-technology industries underlines its intention to future-proof the economy.
He pointed out that the allocation for technical and vocational education and training has been increased from RM7.5 billion to RM7.9 billion in 2025, reflecting efforts to strengthen skills in sectors such as electric vehicles, semiconductors and renewable energy under the new industrial master plan.
“The Human Resources Development Corporation will provide RM3 billion to finance three million training opportunities, while the Skills Development Fund Corp will offer RM650 million in financing for more than 25,000 trainees,” Voon said.
He said the Skills Development Department would receive RM34 million to launch the Industry Academy Programme, which aims to reduce reliance on low-skilled foreign workers.
“Together, these measures reflect a cohesive strategy to build local expertise and strengthen Malaysia’s position in the global digital and green economy,” he said.
Meanwhile, economist Jason Loh Seong Wei said the government should offer temporary tax cuts to small and SMEs to cushion the impact of expected Trump administration tariffs and China’s deflationary pressures.
Loh noted that export-oriented SMEs will face the “double pressure” of lower demand and tougher competition due to ongoing deflation in China, weak oil and petrochemical prices and soft US demand. Sunbiz,
Loh proposed reducing the 17% tax on chargeable income up to RM600,000 to 14% for SMEs with paid-up capital of more than RM2.5 million and annual sales of less than RM50 million.
For the same group, he said, the 15% tax on the first RM150,000 should be reduced to 9%, while the 24% rate on income above RM600,000 should be reduced to 20%.
“The tax cut should be for one year till 2026-2027 and if necessary (ie, under Budget 2027) it should be extended for another year,” he said.
