Budget 2027: A budget of relief, not reform

Budget 2027 does contain some measures that offer a bit of relief to ordinary people. These include the rise in the minimum wage to RM2,000 and extra help through the STR cash aid and Sara basic aid schemes.

But the Budget falls far short of what is needed to address the structural problems in the Malaysian economy. These are:

• Wages for workers in Malaysia suppressed to about one-sixth to one-eighth of what workers doing identical tasks earn in California or Germany
• A race to the bottom on corporate taxes among Asean countries, which has cut Malaysia’s rate from 40% of company profits in 1988 to the current 24%
• Persistent budget deficits for the past 28 years, leaving sovereign debt of about RM1.3tn and a debt-servicing bill of about RM61bn forecast for 2027
• A badly skewed distribution of gross national income, with the richest 10% of individuals and companies receiving 56%, the bottom 90% receiving 28%, and the government a meagre 16%

In free-market economies, wealth tends to accumulate among the richest. It is the responsibility of the government to raise sufficient revenue for programmes that ensure no sector of society is left behind.

We accept that these structural issues cannot be resolved in a single budget. But they have to be identified and addressed.

Unfortunately, the prime minister’s Budget speech gave no sign that the government is considering them. This worries us immensely.

Malaysia needs stronger public services, a living wage that lets people live with dignity, and an economic policy that prioritises the livelihoods of the majority. These goals require giving government a larger share of national income as revenue.

But government revenue has been falling relative to gross domestic product (GDP) for 40 years. Unless this is addressed, any government will struggle to discharge its responsibilities to the people.

Public healthcare needs more

The Ministry of Health will receive RM47.7bn in 2027, compared with RM46.5bn in 2026. That is a rise of RM1.2bn in nominal terms, but it is nothing to shout about.

But healthcare inflation is estimated at about 5% for 2026. On that basis, the 2026 allocation would need to reach RM48.8bn (RM46.5bn x 1.05) to keep pace. The RM47.7bn for 2027 is therefore less in real terms.

This comes at a time when commodities prices have gone up sharply because of the war in Iran.

More people in Malaysia are also turning to public hospitals because of the rising cost of living. They include more than 340,000 people who gave up their health insurance policies between January 2024 and June 2025 because they could not keep up with premium hikes.

Our public health staff are working very hard in difficult circumstances. In our opinion, the ‘Madani’ (caring) government’s failure to support them with adequate funds is highly irresponsible.

PSM has been calling for a clear commitment to raise the allocation for public healthcare to 5% of GDP over five years.

In our alternative budget proposal for 2027, we called for RM61.6bn to rebuild and strengthen public healthcare. This was based on raising health spending from 2.2% of GDP in 2026 to 2.75% in 2027.

It is disappointing that, instead of moving towards the 5% target, the government has cut the healthcare allocation to 1.95% of GDP (taking GDP as RM2,442bn).

Additional funding is urgently needed to retain healthcare professionals, expand hospitals and clinics, maintain facilities, ensure adequate supplies of medicines and equipment, and strengthen primary and preventive care.

The RM200m allocated to buy medical services from the private sector is only a drop in the bucket. The real need is much greater. Only a small proportion of those needing urgent care can be served by this outsourcing initiative.

The long-term underfunding of public healthcare is the major cause of the key problems in the Ministry of Health. Unfortunately, Budget 2027 has deepened the crisis.

Minimum wage not for all

The government will raise the minimum wage to RM2,000 from June 2027. But it is exempting micro, small and medium enterprises (MSMEs) with sales below RM50m. That leaves too many workers waiting for a meaningful improvement in their livelihoods.

According to Liew Chin Tong (The Star, 8 October), the number of private sector firms by annual sales is as follows:

• more than RM100m: 5,578 firms
• RM25m-100m: 14,567 firms
• RM5m-25m: 51,710 firms
• RM3m-5m: 25,503 firms
• below RM3m: 1.1m firms

The RM50m threshold exempts 100% of the MSMEs in the country. They employ an estimated four million workers, but not all are on the minimum wage currently.

We estimate that about a third to a half of them are on the minimum wage currently – a total of two million workers. They would have to remain at RM1,700 because of this exemption.

According to PSM’s estimates, around 700,000 workers earning the current minimum wage may be employed by contractors providing cleaning and security services to government schools, hospitals and other public offices.

The government could adjust these contracts through a variation-of-price mechanism. From July 2027, contractors serving ministries and departments would then receive an additional RM400 per worker per month, on condition that they implement the new minimum wage of RM2,000.

On these estimates, the extra cost would be RM1.7bn for July to December 2027 (700,000 x RM400 x 6), spread across several ministries. In PSM’s view, this is feasible. We are disappointed that the Budget did not explicitly include such a measure.

Another group of workers earning RM1,700 work for contractors providing cleaning, security and other services to larger companies.

These firms, including those listed on Bursa Malaysia, should be required to adjust their service contracts so that contractors can pay their workers the new minimum wage.

As for workers earning RM1,700 in smaller, financially constrained companies, PSM proposes targeted government assistance of RM400 per worker per month for eligible MSMEs, or equivalent tax relief, based on clearly defined eligibility criteria.

The government should protect genuinely vulnerable businesses. But it should not let firms with substantial annual sales avoid paying workers a decent wage.

A wage of RM2,000 is certainly not a living wage. It is far below the RM2,500 per month that PSM recommended.

But to deny this meagre increase to about 50% of those on the current minimum wage is simply not acceptable. We hope the government will speedily implement the suggestions above.

We should all remember that the 17.6% rise in minimum wage in this Budget is much smaller than the rise under the Ismail Sabri Yaakob administration. In 2022, the minimum wage went up from RM1,200 (RM1,100 outside city and municipal council areas) to RM1,500, an increase of 25% to 36%.

Low wages also weaken domestic purchasing power. When workers have little disposable income after paying for food, housing and transport, they cannot spend as much at local shops and businesses.

Suppressing wages across the economy can therefore undermine the very consumer demand that smaller businesses depend on.

PSM insists that the government move towards a RM2,500 monthly minimum wage for all workers. This should come with tax relief or direct assistance of RM400 per worker per month for eligible MSMEs to help them meet the higher wage costs.

Small firms face real pressure

If small and medium-sized businesses are struggling, we must examine the pressures they face.

Are workers asking for basic dignity responsible, or are smaller firms being squeezed by dominant buyers, powerful retail chains, aggressive competition under free trade agreements and increasing market concentration?

In this context, PSM supports the extra RM5bn from Bank Negara to help SMEs facing cash flow problems. We hope this fund will be made available to SMEs in a clear, criteria-based and transparent manner.

Corruption needs real action

The prime minister urges public servants to do their work honestly and fairly.

But he did not address concerns about the prominent role of senior politicians in grand corruption.

Nor did he bring up an important step Malaysia has to take to reduce the loss of government funds to corruption and misappropriation. Some studies put the loss as high as RM30bn to RM40bn per year.

That step is to create a firewall between the executive branch and the agencies that act as checks and balances on government. These include the Malaysian Anti-Corruption Commission, the public prosecutor, the judiciary, the auditor general and the human rights commission Suhakam.

The heads of these institutions should not be chosen by the executive (the prime minister and his cabinet). Malaysia needs to legislate for a special body to advise the King on suitable nominees for these posts.

Growth must reach workers

The government should judge the success of its economic policies by whether workers, farmers and small traders receive a fairer share of the wealth they produce. It should also ask whether families can afford essential needs and whether public services are reliable and accessible.

Budget 2027 contains some useful measures, but it does not go far enough to address these questions.

Malaysia needs a stronger commitment to public provision of essential services, fair wages, progressive taxation and an economy that supports domestic demand. It should not place the burden of adjustment to external financial strains on ordinary people.

PSM calls on the government to reconsider its priorities and adopt policies that reduce structural inequalities. A larger share of national income should go to government as revenue, and public resources must be mobilised to improve people’s lives.

Businesses that benefit from Malaysia’s economy must fulfil their responsibilities towards workers and society.

A budget should be measured by the security, dignity and opportunities it creates for ordinary people. Working people in Malaysia deserve an economy that works for them, not one that continually asks them to bear the cost of its shortcomings.

Support our work by making a donation. Tap to download the QR code below and scan this QR code from Gallery by using TnG e-wallet or most banking apps: