2027 Budget defies pre-election expectations, says economist

KUALA LUMPUR: The 2027 Budget has defied expectations of a pre-election spending spree, with the government opting for a conservative approach rather than more generous handouts to win over voters.

Economist Dr Geoffrey Williams said he had expected more substantial measures to raise household incomes, particularly for middle-income earners, ahead of the next general election.

"You would expect at this stage, for this budget, that there would be a lot more in terms of handouts for a sort of pre-election budget.

"And we didn't see that at all. And that was a real surprise, actually," he said in an interview on TV3's Money Matters, aired on Saturday.

The current parliamentary term is due to expire in December 2027 unless Parliament is dissolved earlier, with the next general election required to be held within 60 days of dissolution.

Williams described the budget as "very steady, very stable, very conservative", saying there was relatively little in it for middle-income households.

Prime Minister Datuk Seri Anwar Ibrahim tabled the RM459.8 billion federal budget on Friday, which includes RM16 billion in cash assistance, an increase in the minimum wage to RM2,000 and higher individual income tax relief.

Williams did not rule out the possibility of the government introducing additional measures ahead of the election, depending on when it is called.

"What that means is the prime minister may well come out with a supplementary budget ahead of an election," he said.

He said this would depend on whether Parliament was dissolved early or the government served closer to the end of its five-year term.

On government debt, Williams said the improving debt-to-gross domestic product (GDP) ratio did not necessarily reflect a reduction in outstanding borrowings, with debt-servicing costs remaining a long-term structural concern.

He said the decline in the debt-to-GDP ratio was largely driven by stronger economic growth, even as the government's total debt continued to rise.

"The government's benefiting from higher growth in terms of those ratios. But there is nothing in particular that's bringing down the debt.

"And that is a long-term structural problem because it's not so much the ratio of debt to GDP, for example, it's the financing cost," he said.

Federal government debt rose to RM1.38 trillion at end-June 2026 from RM1.32 trillion at end-2025, although the debt-to-GDP ratio eased to 63.1 per cent from 65.2 per cent over the same period.

The government expects the ratio to ease to 63.7 per cent in 2027 from a projected 64 per cent this year, while the fiscal deficit is targeted to narrow to 3.3 per cent of GDP from 3.6 per cent.

Williams said debt-servicing costs continued to absorb a substantial portion of the government's operating expenditure, limiting the funds available for other priorities.

Debt-servicing charges are projected to rise 6.5 per cent to RM61.01 billion in 2027 from an estimated RM57.3 billion this year, according to the Finance Ministry.

The amount represents about 16 per cent of projected federal government revenue next year.

"So people are talking about fiscal conservatism and good fiscal management. Well, sure, if you look at it from the perspective of a ratio.

"But if you look at the total amount that's being borrowed... It's growing, actually, in fact," he said.

With debt-servicing costs continuing to rise, attention also turns to how the government plans to strengthen its revenue base.

The 2027 Budget made no major announcements concerning the Sales and Service Tax or Goods and Services Tax.

Williams said without introducing new taxes, the government would have to focus on improving the efficiency of the existing tax system.

He also reiterated his proposal for a small tax on electronic payments, which he believed could generate substantial revenue given the growing volume of digital transactions.

Under his proposal, a one per cent electronic payments tax could potentially raise nearly RM30 billion, although the estimate was based on his proposed model rather than an official government projection.

Looking ahead, Williams identified oil prices and political uncertainty as two major risks to Malaysia's economic and fiscal outlook over the next 12 months.

He said a further increase in oil prices would put additional pressure on government spending, while lower prices could free up funds for other priorities.

Political uncertainty surrounding the timing of the next general election would also be a significant risk, he added.