Macquarie expects Budget 2027 development expenditure to exceed market forecasts

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Budget 2027 exceeds forecasts

Highlights

Macquarie expects development expenditure in Budget 2027 to rise to RM85 billion from RM81 billion in 2026, exceeding market forecasts.
PETRONAS' contribution to government revenue is expected to rise to RM36 billion in 2027, up from RM20 billion in Budget 2026.
Consumer stocks, banks, and companies linked to plantations, energy and infrastructure could benefit from greater household support and higher development expenditure.

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

2027 spending projections and fiscal assumptions

As reported by The Edge Malaysia, Macquarie Equity Research expects the development expenditure allocation in Budget 2027 to be higher than current market expectations, driven by government revenue growth and reduced pressure from fuel and electricity subsidies.

The research arm of Macquarie Group Ltd expects government revenue to grow 8% in 2027, supported by continued economic growth, stronger tax collection and higher contributions from Petroliam Nasional Bhd (PETRONAS). PETRONAS' contribution could rise to RM36 billion from RM20 billion under Budget 2026.

According to Macquarie, the combination of these factors gives the government the capacity to increase spending without compromising the deficit reduction path. The firm expects development expenditure to rise to RM85 billion next year from RM81 billion for 2026, covering energy and food security, reform-related initiatives and small-scale infrastructure projects.

Macquarie also expects fuel and electricity subsidy spending to decline as oil prices moderate. Its base case assumes Brent at US$80 per barrel in 2027, down from an estimated average of US$90 per barrel for 2026, although still above the US$60 to US$65 per barrel base-case assumption in Budget 2026.

Implications for consumers, elections and market sectors

Macquarie believes Budget 2027 could take on the characteristics of an election-oriented budget, with greater support for households, including higher civil servant salaries and an additional RM3.7 billion in cash aid under the Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (Sara) programmes. This view differs from the broader market expectation that fiscal constraints will limit the government's flexibility.

This more optimistic approach also differs from the assessment of economist Dr Muhammed Abdul Khalid, who shared his views at a Macquarie-hosted pre-Budget 2027 discussion on 6 Oct. While both sides expect the budget to favour household support without imposing new taxes on businesses, Muhammed assumes higher oil prices of US$90 to US$100 per barrel next year, thereby limiting room for development spending, which he expects to remain around RM80 billion.

From a market perspective, consumer stocks could benefit from higher household assistance and better remuneration for civil servants. Macquarie also sees potential benefits for plantation companies through measures to facilitate land and development approvals, as well as positive effects for banks and companies exposed to energy security and infrastructure spending.

In our earlier coverage of the fiscal position and tax reforms ahead of Budget 2027, we examined how the deficit is expected to continue narrowing amid improving government revenue, although debt servicing pressures remain significant. The article also highlighted efforts to strengthen collection through e-invoicing and data-driven compliance, as well as discussions on a hybrid SST-GST model to reduce the cascading of input taxes while maintaining investment competitiveness.

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