Petrol subsidy cuts, new taxes and wage increases to be focus of Malaysia’s 2025 Budget: Analysts

Despite the positive signs, Mr Anwar himself acknowledged in an Oct 10 post on X that there was “much room” for improvement in the country’s fiscal governance and performance.

For instance, the government is seeking to manage its RM1.5 trillion debt, and is well on its way to reducing its fiscal deficit to 4.3 per cent this year, with an eye on 3 per cent by 2026.

Apart from diesel, the government has also adjusted subsidies for chicken and electricity as it tries to reduce spending on subsidies and social assistance by RM11.5 billion, a target outlined in Budget 2024.

While the World Bank said in its October report that these efforts were expected to lower subsidy spending, it warned further rationalisation was needed to achieve the target, together with measures to cushion the impact on inflation and vulnerable groups.

After the fallout from the move on diesel, Malaysia-based economist Shankaran Nambiar told CNA that Mr Anwar might take a more cautious approach with the rationalisation of petrol subsidies.

“The removal of diesel subsidies was not appreciated by large sections of society, so it will make sense for the government to take a pause before introducing subsidy rationalisation of petrol, an act that is bound to be unpopular,” he said.

“It might be mentioned (at Friday’s budget), but he’ll want to gauge sentiment and wait-and-see before actually implementing.”

SLASHING PETROL SUBSIDIES

Economy Minister Rafizi Ramli said in November last year that the government will roll out a targeted petrol subsidy programme in the second half of 2024, but authorities have since remained largely silent on any sort of timeline for implementation.

Bank Muamalat Malaysia chief economist Mohd Afzanizam Abdul Rashid said Mr Anwar could give more details on the move on Friday, including timeline and guidelines on how to apply for cash assistance for those eligible.

Some diesel vehicle owners who might have qualified for assistance were caught off guard when the sudden announcement on removing subsidies led to a spike in diesel prices overnight, Dr Afzanizam pointed out.

The government could use the diesel episode as a “template” to implement the lessons learnt in its petrol rollout, making the experience more “seamless” for those who will be affected, he said.

“That’s very important, because the moment you decide to cut subsidies, the price of RON95 will go up, and typically, other prices of goods and services will follow suit,” he added.

“So for those who qualify for cash transfers but don’t get them in a timely fashion, their purchasing power will be affected.”