Fiscal Prudence or Failing to Seize Opportunities? A Review of the 2025 Budget
PETALING JAYA: The Institute for Democracy and Economic Affairs (IDEAS) has praised the 2025 budget for its efforts to address key socio-economic challenges while promoting equitable growth, sound fiscal policies, and sustainable development. However, the think tank has also called for more robust revenue generation strategies in light of the country’s increasing debt burden and the need for responsible fiscal management.
A Cautious Approach to Revenue Generation
Acting IDEAS CEO Aira Azhari stated that the government has taken a "cautious approach" to revenue generation, resulting in relatively minor tax measures, such as the expansion of the sales and services tax to include non-essential items and a 2% dividend tax for individual shareholders with annual dividend income exceeding RM100,000. While these measures are steps in the right direction, they are unlikely to boost government revenue significantly.
The Real Challenge: Wider Revenue Base
IDEAS noted that the real challenge lies in ensuring the country’s revenue base is widened, particularly given the low tax revenue-to-GDP ratio projected at 12.4% in 2025, which is lower than upper middle-income countries of 18.8%. Azhari emphasized that Malaysia’s strong economic performance, with a GDP growth rate of 5.9% in Q2 2024, low inflation, robust wage growth, and a low unemployment rate, presents an ideal opportunity for the government to implement broader revenue-raising measures or substantially reduce subsidies.
Opportunities Missed
Aira highlighted that the minor tax adjustments and modest subsidy rationalization represent a missed opportunity and raise concerns about the government’s ability to achieve its Public Finance and Fiscal Responsibility Act-mandated fiscal targets, which include a 3% fiscal deficit. She emphasized that the amount of money needed to provide for the people’s basic needs is significant and that there will be a time when the government will need to introduce new taxes to sustain its spending.
Additional Measures to Widen the Tax Base
The 2025 budget has also announced several measures to widen the tax base, including a global minimum tax on multinational enterprises, a carbon tax on the iron, steel, and energy industries, and a rise in the excise duties on sugary drinks. Azhari noted that initiatives like carbon pricing in the iron and steel industry will not only encourage decarbonization but also position Malaysia favourably in international trade, especially with the European Union.
Conclusion
In conclusion, while the 2025 budget demonstrates a commitment to reducing the fiscal deficit, IDEAS contends that the government’s "cautious approach" to revenue generation is not sufficient to address the country’s pressing fiscal challenges. It is essential for the government to adopt more robust revenue generation strategies to ensure sustainable fiscal management and meet the rising debt burden.
Frequently Asked Questions
Q: What is the 2025 budget’s strategy for revenue generation?
A: The budget outlines several steps to increase revenue collection, including the expansion of the sales and services tax and a 2% dividend tax for individual shareholders with annual dividend income exceeding RM100,000.
Q: Is the government’s approach to revenue generation sufficient?
A: No, according to IDEAS, the government’s "cautious approach" is not sufficient to address the country’s fiscal challenges, and more robust revenue generation strategies are needed.
Q: What are the key measures to widen the tax base?
A: The budget includes a global minimum tax on multinational enterprises, a carbon tax on the iron, steel, and energy industries, and a rise in the excise duties on sugary drinks.