Malaysian government remains able to fund subsidies and aid amid cost-of-living pressures

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Malaysia continues to fund subsidies

Highlights

The 2027 Budget raises allocations for Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (Sara) to RM15 billion from RM8 billion previously.
Fuel subsidies remain in place at an estimated cost of RM40 billion a year, keeping RON95 petrol prices at RM1.99 per litre despite rising global crude oil prices.
The government has allocated an additional RM18 billion for civil servant salary increases after 12 years, aiming to reduce leakages and corruption while improving fairness in public-sector remuneration.

This article was translated from the original. Read the original version by our correspondent here.

2027 Budget fiscal details and household support

As reported by The Edge Malaysia, Prime Minister Datuk Seri Anwar Ibrahim said the 2027 Budget was formulated based on the country's economic position and the needs of the people, with the aim of ensuring development benefits reach all segments of society. He said allocations for Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (Sara) had increased to RM15 billion, compared with RM8 billion when he first took office.

Anwar said the government remains able to address rising global crude oil prices while maintaining fuel subsidies to ease the public's burden. According to him, fuel subsidies are estimated to cost RM40 billion a year to keep RON95 petrol prices at RM1.99 per litre.

He stressed that government assistance should be seen as supplementary support for people's income, rather than a replacement for their wages or sources of income. Anwar also cited the RM1,000 assistance for each taxi driver, funded through proceeds from new vehicle registration numbers, as an example of how government revenue can be channelled back to the public.

Implications for public spending and development allocation

Anwar said subsidy rationalisation remains among the most challenging economic measures because it requires political courage and a willingness to face public criticism. At the same time, he stressed the need to continue targeting subsidies to reduce leakages and waste, while ensuring aid reaches those most in need.

In the public sector, he said the government has allocated an additional RM18 billion for civil servant salary increases after nearly 12 years without pay adjustments. The measure, he said, aims to provide fairer remuneration while encouraging improvements in service delivery, the prevention of leakages and the rejection of corruption.

The government is also prioritising low-income groups and gig workers to ensure their needs are reflected in public spending. Anwar added that economic growth, increased investment and technological progress must be accompanied by efforts to address low wages, high housing rents and rising prices of essential goods, as well as a more balanced distribution of development funds among states, particularly areas with lower revenue but greater needs in poverty eradication, flood mitigation and basic infrastructure.

In our previous coverage of Malaysia's efforts to reduce the fiscal deficit to below 3% of GDP, we outlined the fiscal consolidation plan, which relies on targeted subsidy reforms and digitalisation to improve spending efficiency. We also highlighted that untargeted subsidies can burden the country's finances, and that savings from targeting should be channelled back more productively while protecting vulnerable groups and maintaining investor confidence.

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