KUCHING: Malaysia’s plan to cut its deficit while raising spending is achievable through stricter governance and smarter investments, said Datuk Madeline Berma.
The Institut Masa Depan Malaysia (MASA) senior fellow said the government’s move to narrow the fiscal deficit from 5.5 per cent in 2022 to 3.5 per cent in 2026, even as total expenditure rises from RM421 billion to RM470 billion, shows confidence that consolidation can continue without crowding out growth.
According to her, this is possible because Budget 2026 leverages government-linked companies (GLICs), statutory bodies, and ministry-controlled firms to supplement direct expenditure.
“Among the initiatives to prevent crowding out are increased domestic investments under the GEAR-uP initiative, a RM1.2-billion Accelerator Fund by the Retirement Fund Inc (KWAP) to co-invest in energy transition, food security and digital economy sectors, and RM250 million from Khazanah Nasional Bhd to strengthen competitiveness among mid-sized firms,” she told Sarawak Tribune .
She added that Khazanah and KWAP would also jointly invest RM550 million into the semiconductor ecosystem to support partnerships between local firms and multinationals.
Madeline said the government’s decision to slightly reduce development expenditure to RM81 billion reinforces fiscal prudence and strengthens its commitment to efficiency in public spending.
On revenue, she said the government’s target to collect RM343.1 billion next year without introducing new taxes is a short- and medium-term measure to sustain fiscal stability.
She noted, however, that the current sales and service tax (SST) system is less realistic for long-term growth due to its narrow scope and cumulative cost effects, which can undermine competitiveness.
“The Goods and Services Tax (GST) is better positioned to sustain fiscal stability, reduce hidden tax burdens, and support social protection, as it also helps plug leakages from tax evasion,” she said.
She added that Budget 2026’s combination of fiscal restraint and large-scale investment in semiconductors, renewable energy, and artificial intelligence can strengthen investor confidence rather than pressure the fiscal balance.
“Malaysia’s annual Budgets have steadily grown from RM388.1 billion in 2023 to RM470 billion in 2026.
“However, this increase reflects fiscal prudence, as development expenditure was reduced from RM86 billion in 2025 to RM81 billion in 2026,” she said.
She said the focus on governance is equally crucial.
“Measures such as revenue enhancement, expenditure rationalisation, the Fiscal Responsibility Act, and the proposed Government Procurement Act are steps that will strengthen investor confidence and promote good governance in the use of public funds,” she added.
