The Madani government's Budget 2025 on 18 October should continue to highlight measures to improve the nation's
competitiveness to attract investments; fast tracking fiscal reforms that emphasize higher revenue collection, prudent spending, fewer subsidies and reduction in the annual net borrowings; enhancing governance and public delivery mechanism; uplifting the quality of lives and equitable distribution of the wealth; and continuing the sustainability agenda for the better future.
In its preview for the upcoming budget, TA Securities highlighted some key measures the government could be initiating to boost tax collection and rein in spending among others that could pave the way for a more resilient government in 2025. Economists at TA is of the view that the budget will emphasise restructuring the economy and boosting competitiveness.
Conducive measures towards this goal will be crucial in driving investments, especially net foreign direct investments which dwindled to RM40.4bn in 2023 from RM75.4mn in 2024. This is more so with Malaysia slipping seven places to 34th in the IMD World Competitiveness Ranking 2024, lower than its developing peers Thailand (25th) and Indonesia (27th) in the Southeast Asia region.
It should contain measures to boost productivity, improve the ease of doing business, promote transparency in awarding government contracts, introduce more incentives to drive sustainable development initiatives, encourage the use of digital tools and technologies, prioritise human resource development to attract and retain talents apart from increasing participation of women in the labour force and management, revamp the education system to meet the needs of the private sector and changing job scopes, provide better public healthcare, etc. These measures will complement the government's strategy to propel the economy via high-growth high-value (HGHV) investments as stipulated in the New Industrial Master Plan 2030 (NIMP), which identified 21 sectors for growth but prioritises aerospace, chemical, electrical and electronics (E&E),
pharmaceutical and medical devices sectors.
Thus, this Budget should reveal more details on future growth engines like advanced semiconductor manufacturing in line with the National Semiconductor Strategy (NSS), carbon capture, utilisation and storage (CCUS), green industrial parks, artificial intelligence (AI) related investment, and new growth corridors. These include the widely anticipated Johor-Singapore Special Economic Zone, Tanjung Malim Automotive Hi- Tech Vally and the Kerian Integrated Green Industrial Park. The NSS is a long-term plan involving three different phases and the government has committed at least RM25bn in fiscal support to
operationalise it and attract RM500bn of investments in Phase 1.
This involves domestic direct investment focusing on IC design, advanced packaging, and manufacturing equipment, and foreign direct investments focusing on wafer fabs and manufacturing equipment. The house said we may see targeted incentives in this budget to attract investments into these HGHV sectors. The Government-Linked Investment Companies and Government-Linked Companies are likely to play a pivotal role in this based on the government's announcement that they will invest RM440bn in domestic capital markets and another RM120bn in domestic direct investments. TA said it believes much of these investments will be eventually directed towards achieving the nation's aspiration of increasing exposure in high growth and high value-added ventures and nurturing sustainable development initiatives and to reduce dependency on commodities and low value- added manufacturing.
Thus, TA said players in these sectors could benefit from the government measures and perks to broaden the ecosystem, embark on more complex and niche products & services, increase design and technical competence, and promote automation and new technologies like artificial intelligence, machine learning and cloud services to improve efficiency and reduce dependency on lower-skilled workers.
The government is expected to continue its support for energy transition efforts in this budget, in-line with the National Energy Transition Roadmap (NETR) targets as it aims to achieve 40% of Malaysia's primary energy mix from renewable sources by 2035. These involve huge investments and require undivided attention to increase installed energy capacity with the country opening up its doors to mushrooming data centres, which are gaining traction due to the proliferation of AI and cloud services, and committing to RE exports. Apart from solar, hydro, biomass and waste-to-energy, new technologies like green hydrogen, nuclear and large-scale energy storage are also considered viable options to meet Malaysia's rising energy demand. Multibillion investments are also needed to increase the capacity of the national grid as well.
Micro, Small, and Medium Enterprises (MSMEs) may continue to receive government incentives and funding through various financing schemes to move up the value chain and contribute to a healthy and vibrant ecosystem that will support Malaysia's transition towards a high-income economy. To meet the increasing labour force requirements in terms of quantity and skill sets, the government is expected to provide more incentives to increase female labour force participation in the economy, encourage a flexible work environment and promote TVET education.
Despite the focus on HGHV investments, spending on brick-and-mortar big ticket infrastructure projects will continue in this Budget, especially related to rail transportation. The eventual kickoff of the much delayed MRT 3 project should happen next year given the circle line is an integral part of completing the rail network in Klang Valley. More details of Penang LRT are also expected in this budget as parliament has approved it this year and it is expected to be operational in 2030.
The first of three parts of this project, which involves a line from Silicon Island to Komtar, George Town has already been offered to SRS Consortium Sdn Bhd, a subsidiary of Gamuda. The remaining line from Komtar to Penang Sentral on the mainland and the contract for the tun-key systems and rolling stocks are still pending an open tender.
There are also possibilities for the Autonomous Rail Transit (ART) to be introduced in Kuala Lumpur, following the footsteps of Johor and Sarawak, which have already conducted pilot tests, and Putrajaya, whose pilot test will be concluded by the end of this year. The government is expected to set aside allocation for the Bus Rapid Transit and dedicated bus lanes as well to
improve last mile connectivity. Additionally, we anticipate that fiscal package incentives for the Johor-Singapore Economic Zone may also be featured in the Budget 2025 announcement. Negotiations for the JS-SEZ are in their final stages, and this initiative is poised to serve as a springboard for the ASEAN market.
The property sector will benefit from these developments too due to housing demand in surrounding areas. Besides, the sector should also benefit from government measures to increase home ownership among the low-to-middle income group, developer- friendly policies for affordable housing and incentives for green development.
TA said it anticipates an increase in minimum wages from RM1,500 to between RM1,700 and RM1,800 in this budget to be consistent with salary increments for civil servants. There is also a possibility for an increase in allocation under the "Sumbangan Tunai Rahmah" programme, e-wallet and other household spending that will benefit private consumption, which is also seeing positive contribution from a significant increase in tourist arrivals.
Apart from emphasis on the B40 and low- income group who don't pay taxes, TA said the government should also be helping the 1.3mn taxpayers, who are mostly monthly income earners, to address the high cost of living. Considering the actual price of goods, services, medical costs, education fees, etc. have surged in the last decade, a raise in the income tax reliefs, like personal, child, children's education and medical insurance premiums, etc., is necessary.