2027 budget must be matched by revenue, spending reforms, says think tank

The government must broaden its revenue base, improve spending transparency, and strengthen essential services to turn the 2027 budget’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 rein in the fiscal deficit needed to be matched by structural reforms to strengthen Malaysia’s long-term fiscal resilience and economic competitiveness.

IDEAS welcomed the planned deficit cut to 3.3% of gross domestic product (GDP) in 2027, but said the unchanged 12.8% tax-to-GDP ratio and projected decline in federal revenue to 16.4% of GDP showed limited progress in broadening the revenue base.

“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 RM40 billion fuel subsidy bill in 2026 and called for “better-targeted assistance”, with savings redirected towards households that need them most.

It also questioned whether the projected 2.6% increase in healthcare spending would be enough 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.

On reforms, IDEAS said the 2027 budget “provides limited clarity on timelines” for 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.

On federal-state relations, IDEAS welcomed higher allocations of RM18.7 billion for Sabah and RM16.2 billion for Sarawak, but said sustained progress required more than higher allocations 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 a total of RM459.84 billion under the 2027 budget – a RM40 billion increase 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.

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