Agora Society has questioned the key fiscal policies and vision for 2025 outlined in the third “Madani” (civil and compassionate) Budget presented by the ruling coalition.
People should look beyond the rhetoric of the Budget speech and understand the impact of the policies through expert analysis and people’s experiences, and by opening the Budget document to see the contents for themselves.
Agora Society believes that the federal government’s efforts to focus on fiscal responsibility and reduce the fiscal deficit and borrowing year on year deserve recognition. The estimated fiscal deficit target of 3.8% in next year’s Budget, while not a record low, is still the lowest since the Covid outbreak in 2020.
Despite the massive 1MDB financial scandal and malfeasance that had engulfed the Barisan Nasional regime under former Prime Minister Najib Razak, his government had also sought to reduce its fiscal deficit, with the 2014-2019 budget deficit figures lower than 3.8% and also reaching 2.9% in 2017.
Of course, some fiscal mismanagement by the BN government may have left a ‘mess’, but there is no denying the figures shot up again because of the Covid pandemic, and subsequent governments had to adjust their policies to increase borrowing to meet the needs of the people.
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The current Madani government is still to be commended for reducing the deficit and maintaining fiscal responsibility and transparency.
However, Agora Society does not forget to remind the Pakatan Harapan coalition its election manifesto stated that the prime minister should not also be the finance minister.
If the Madani government really wants to be accountable and transparent, it must be true to its word and eliminate the possibility of the Prime Minister’s Department and the Ministry of Finance benefiting from each other, to avoid former Prime Minister Najib’s grave mistake.
One of the main policy directions is to rationalise subsidies, which is actually a redistribution of financial resources, including the opportunity cost of the amount of subsidies.
The government plans to ‘save’ about RM8.8bn in subsidies next year or nearly RM20bn downward compared to 2023. This is the new policy reality of the Madani government.
But what is unacceptable to many, especially the middle class, is that the government has been stressing that it wants the so-called ‘mahakaya’ (ultra-rich) class to pay for their own lavish spending, but the only examples cited in the Budget speech that have made an impression are Ron 95 petrol and the import of salmon and avocado as ‘premium’ foods. People find this ridiculous.
In addition, the government wants to withdraw the petrol subsidy next year for the so-called T15 class (the top 15%).
But according to the Department of Statistics’ household income data, a two-income household with a total monthly income of up to RM13,300 is already classified as T15, leading to much grumbling from many urban middle-class families.
But Prime Minister Anwar Ibrahim’s response on 27 October did not seem well thought out. If the T15 can’t afford [to lose such subsidies], the government is considering adjusting it to T10, adding that it would be better to raise the income of T15 households to above RM15,000 or RM18,000 per month.
We urge the Madani government, instead of arguing with the people about what percentile is considered ‘ultra-rich’, to be honest and communicate the original intention and timetable for rationalising the subsidy.
After all, the vast majority of the public who use subsidised petrol are the middle class, and it is unlikely that the government will only want the top 1% or the top 0.1% (the truly ultra-rich) to pay the full price of petrol.
The market price of unsubsidised Ron 95 petrol, calculated a week ago, is RM2.76 per litre, or about 70 sen per litre for subsidy.
We estimate that the so-called T15 (top 15% of households will have to pay more than RM280 per month extra for unsubsidised Ron 95 petrol (assuming a household with two petrol cars, each consuming 200 litres per month).
The government needs to speed up the pace of improving and upgrading public transport and pedestrian walkways. Otherwise, people will feel ‘forced’ to drive and pay more for fuel, with no reasonable public transport alternatives in sight.
Looking at the sources of revenue growth for the federal government next year, an additional RM8bn will come mainly from corporate tax, while sales and service tax (SST) will also increase by RM5.8bn. The latter will have a greater impact on consumers, as some people will have less disposable income due to the wider range of SST-taxable items that will be imposed next year.
Although the government has increased allocations for cash assistance such as the Sumbangan Tunai Rahmah (compassionate cash aid or STR), as well as widening the categories and increasing the tax rebate ceiling, it is still unclear whether these measures will be sufficient to cope with the impact on personal expenditure impact.
Moreover, STR and some tax-relief measures have been in place since the BN era, and only the name, scope and amount have been changed – hardly a breakthrough in policy thinking.
The fuel subsidy rationalisation policy is arguably the boldest fiscal policy of the Madani government, but it is also the most unpopular. As the government insists on doing the right thing, it needs to be bolder in implementing the many institutional reforms it has promised, not just at the level of fiscal responsibility.
With Anwar paying lip service to being tough on corruption, the government must not be seen to be biased by selectively and severely punishing and restricting its political opponents, while being seen to be lenient and compromising with politicians from its own political side who are implicated or even convicted of corruption!
Below are Agora Society’s comments and analysis on the detailed policies in Budget 2025:
Improving Budget transparency
The federal government took the lead in releasing a pre-Budget statement on 30 July to avoid public criticism for not releasing a statement in 2023.
According to the latest Open Budget Survey (OBS), Malaysia’s score of 48 in 2023 is barely higher than the 47 in 2021, and is still far from the minimum target score of 61 in 2025 set in the mid-term review of the 12th Malaysia Plan. The country also lags far behind other Southeast Asian countries such as the Philippines (75 points), Indonesia (70 points), Thailand (60 points) and Vietnam (51 points).
Agora Society calls on the federal government to follow the principle of transparent governance by publishing the mid-term review report of Budget 2024 and uploading it on the official website.
Prior to the announcement of the latest Budget, the federal government continued to carry out the ‘Program Jelajah Negeri’ (tour of the states).
We hope that the government will show the spirit of federalism by visiting the 13 states before the Budget is announced and publish the details of the tour activities on the official Budget website.
As stated in the “Fiscal Outlook 2025” document, the Ministry of Finance should implement a fiscal transparency reporting mechanism, including a fiscal risk statement and a tax expenditure statement to be introduced in the future. This will enable a mid-term review of the revenue strategy, adjustment of expenditure policies and consideration of current fiscal risks.
Progressive taxation; civil service-related expenses
In Budget 2025, the federal government has shown a stronger commitment to progressive taxation. While tax diversification and base broadening do not necessarily lead to significant revenue increases, progressive taxation has the effect of demonstrating social justice, ie allowing groups with greater financial means to bear a greater proportion of the tax burden.
Civil servants’ salaries and pensions account for 31.6% and 12.1% respectively of operating expenditure, making a total of 43.7%.
The projected increase in revenues, the overall optimisation of human resources and efficiency in the civil service, and the reform of civil service pensions will help to free up more resources to build a deeper and broader social safety net. These additional resources will also provide the necessary development expenditure to drive economic development.
Building social safety nets
For full-time employees in the formal economy, the social safety net consists mainly of the Employees’ Provident Fund (EPF), social security (Socso) and unemployment benefits.
Budget 2025 will allow the EPF to be transferred between family members, a measure that will help wealthier family members to contribute to the support of other members.
The new policy will also require foreign employees to contribute to the provident fund as a matter of fairness. Before the Budget was tabled to Parliament, the federal government amended the relevant laws to ensure that foreign workers can enjoy comprehensive social security benefits.
The salary ceiling for social security and unemployment benefits will be raised to RM6,000.
For employers, the self-employed and workers in the informal economy, the maximum matching ratio for EPF i-Saraan (the voluntary provident fund scheme) contributions will be increased from 15% to 20%, with the maximum matching fund entitlement capped at RM500 per annum and RM5,000 for life.
Public transport monthly passes
Currently, the Klang Valley MY50 monthly pass does not include the KTM lines. As an important part of the Klang Valley rail system, the KTM lines complement other rail lines.
If the MY50 monthly pass can cover the KTM lines, it will systematically cover all rail and bus lines in the Klang Valley, including buses operated by Prasarana Malaysia Bhd and free bus services provided by the Selangor state and local governments. This will greatly enhance the convenience and attractiveness of public transport and bring more benefits to the people.
In Penang, the MY50 monthly pass has resulted in the separation of fares for buses, ferries and KTM routes due to different operators. If the Penang public transport monthly pass can consolidate the above routes, it will improve the accessibility of the northern region, which in turn will enhance the economic vibrancy of the area and the quality of life of its residents.
More funding for health facilities
The 2025 Budget for the Ministry of Health, while still the second highest allocated ministry after the Ministry of Education (10.7% of the total budget), is not as high as this year’s (13.5%; RM4.9bn) in terms of growth rate (9%) and increase in allocation (RM4.0bn) next year.
However, it is commendable that the proportion of development allocation to the Ministry of Health has increased to 14.8% from 2021, and the amount of development allocation has also increased to an all-time high of RM6.7bn next year.
In fact, the development allocation announced by the finance minister for the upgrading of clinic facilities has also increased significantly year-on-year to RM400m next year.
This is the call of the People’s Health Forum (PHF), a coalition of civil society organisations, particularly Agora Society, which has been involved since 2019, and we are pleased to see it happen.
We also agree with the government’s intention to set up a fund to help patients with rare diseases and to support local pharmaceutical companies by giving them preferential treatment in tenders for medicines, as this will offer assurance of drug supply and more favourable prices in the medium to long term.
Whose friends are RakanKKM?
With the official announcement of the “RakanKKM” (partner of the Ministry of Health) initiative in Anwar’s budget speech, the Ministry of Health has also launched a website (https://rakankkm.moh.gov.my) to provide more information to explain the initiative.
We remain sceptical about the policy, which will be piloted in five MoH hospitals under a ‘private wing’ fee-for-service scheme.
We call on the government to seriously study the policy to avoid dividing people’s access to public healthcare and compromising its quality.
Tackle cause of flooding
Agora Society welcomes the government’s continued provision of the ecological fiscal transfer to forest-rich states from RM200m this year to RM250m next year to encourage state governments to conserve forests instead of selling them for development or cutting trees for timber to generate more revenue.
The allocation of funds to upgrade flood control facilities and works is only part of the programme. But the government must address and monitor the human factor that causes flooding and tackle the root cause of the problem.
Otherwise, the huge allocation of RM2.7bn to the Drainage and Irrigation Department (JPS) next year will not be effective in curbing flooding.
Cutting carbon emissions?
Agora Society is not in favour of the government’s support and promotion of the carbon capture, utilisation and storage scheme, as it encourages the oil industry to extract more oil and import carbon from abroad to store in the country – which does not contribute to any real reduction in carbon emissions.
We also oppose the government’s support for the rare earth elements industry and are concerned that this will directly lead to more forest reserves being opened up for mining. This would not be consistent with the government’s policy of reducing carbon emissions. – Agora
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