The government must broaden its revenue base, improve spending transparency and strengthen essential services to turn Budget 2027’s ambitions into sustained progress, says a think tank.
In its assessment of the budget, the Institute for Democracy and Economic Affairs (IDEAS) said efforts to reduce the fiscal deficit must be accompanied by structural reforms to strengthen Malaysia’s long-term fiscal resilience and economic competitiveness.
IDEAS welcomed the planned reduction in the fiscal deficit to 3.3% of gross domestic product (GDP) in 2027, but said the unchanged tax-to-GDP ratio of 12.8% and projected decline in federal revenue to 16.4% of GDP indicated limited progress in broadening the revenue base.
Tax reform and targeted subsidies
“Continued reliance on petroleum income and a projected RM32 billion Petronas dividend reinforce the need for comprehensive tax reform and a transparent dividend framework that balances government revenue needs with Petronas’ long-term sustainability,” it said in a statement today.
On subsidies, IDEAS cited a reported fuel subsidy bill of RM40 billion in 2026 and called for better-targeted assistance, with savings redirected towards households most in need.
The think tank also questioned whether the projected 2.6% increase in healthcare spending would be sufficient to keep pace with rising medical costs and workforce shortages.
“Sustained investment in healthcare, education and social protection is essential to ensuring that economic growth benefits more Malaysians,” it said.
Greater clarity on institutional reforms
IDEAS said Budget 2027 provided limited clarity on timelines for several reforms, including political financing legislation, a term limit for the prime minister, the separation of the attorney-general and public prosecutor’s roles, and electoral reform.
However, it welcomed progress towards parliamentary autonomy and the proposed study of a law reform commission.
“These efforts should be supported by transparent processes, meaningful public consultation and stronger parliamentary oversight,” it said.
Fairer federal funding for Sabah and Sarawak
On federal-state relations, IDEAS welcomed the higher allocations of RM18.7 billion for Sabah and RM16.2 billion for Sarawak, but stressed that sustained progress required more than increased funding in a single year.
“The government must establish a fair, transparent and predictable formula for federal transfers and special grants, developed in meaningful consultation with both state governments,” it said.
“This would provide greater certainty over future funding and ensure allocations better reflect the states’ development needs.”
The government has allocated RM459.84 billion under Budget 2027, an increase of RM40 billion from the RM419.2 billion allocated for 2026.
It expects to spend more than RM80 billion on subsidies, assistance and incentives in 2027, with fuel subsidies projected to remain high at RM40 billion.
