KUCHING: Budget 2026 signals a shift toward tighter fiscal discipline, but Malaysia is still not ready to let markets lead, said the Centre for Market Education (CME).
The economic think tank said the Fourth MADANI Budget represents progress in fiscal restraint and transparency, yet remains rooted in interventionist policies that limit genuine market-driven growth.
CME acknowledged several positive moves, including the government’s plan to narrow the fiscal deficit from 4.1 per cent to 3.5 per cent next year, with a medium-term goal of 3 per cent.
“The trajectory toward fiscal restraint is preferable to unchecked public spending,” it said, describing the target as a responsible step after years of expansionary budgets.
The centre also welcomed the replacement of blanket subsidies with targeted schemes such as the BUDI95 fuel programme and diesel subsidy rationalisation, noting these measures are less distortionary and could reduce waste and rent-seeking.
It said efforts to strengthen the Fiscal Responsibility Act and enhance audit and enforcement capacity were encouraging if they limit ministerial discretion rather than expand bureaucracy.
“Institutional discipline, not moral exhortation, is what sustains fiscal integrity,” CME said.
The think tank viewed the plan to raise RM10 billion through public-private partnerships and co-investments with government-linked investment companies (GLICs) as positive — provided markets, not the state, take the lead in allocating capital.
CME also noted that higher allocations for Sarawak and Sabah, alongside broader digital connectivity initiatives, could help close long-standing regional gaps that have constrained growth and mobility.
However, it warned that Malaysia’s economy remains heavily state-directed.
“With total spending of RM470 billion, including RM338 billion in operating expenditure, the government’s large footprint continues to restrict market efficiency and spontaneous coordination,” it said.
CME cautioned that even modest deficits could still lift debt levels and distort prices when spending exceeds national savings, undermining purchasing power and capital formation.
“True fiscal discipline requires not just smaller deficits but sound, savings-based financing,” it added, warning that borrowing to fund consumption merely shifts the burden to future taxpayers unless it leads to lasting productivity gains.
While the centre supported ongoing aid for small and medium enterprises (SMEs), it urged policies that encourage enterprise consolidation and collaboration — allowing smaller firms to pool resources, pursue joint projects, and strengthen competitiveness without losing independence.
Describing Budget 2026 as transitional and less populist than before, CME said Malaysia remains caught “between reformist rhetoric and genuine liberalisation.”
To achieve a market-based trajectory, the think tank urged the government to adopt rule-based fiscal discipline anchored in a multi-year path toward balance or surplus.
Public investment, it said, should focus only on genuine public goods, backed by rigorous cost-benefit analysis. Subsidies and co-investment funds should be phased out gradually and replaced by open competition and tax neutrality.
CME also called for stronger monetary safeguards to prevent deficit monetisation and for a leaner government that frees resources for private-sector growth.
“CME calls for the abolition of industrial policy, arguing that entrepreneurs, not the state should discover opportunities,” it said.
Finally, the centre urged the adoption of institutional rules and constitutional caps to prevent future fiscal slippage.
“Belanjawan MADANI 2026 deserves recognition for progress in discipline and transparency,” it added.
“Yet the state continues to act as planner, investor, and allocator roles incompatible with the spontaneous order that underpins prosperity.”
