BUDGET 2026 is scheduled for tabling on 10 October 2025. MBSB Research believes that Budget 2026 will reflect the government’s commitment to sustaining fiscal support and advancing structural reforms under the MADANI Economy Framework and the 13th Malaysia Plan (2026–2030), signalling a holistic approach to long-term growth.
“We expect the government to allocate approximately RM430 bil, slightly higher than the RM421 bil in 2025, while continuing to narrow the fiscal deficit to RM78 bil, or -3.6% of GDP,” said MBSB.
This improvement underscores Malaysia’s progress in restoring fiscal space since 2021, enabling counter-cyclical measures during future downturns.
Revenue is projected to rise to RM354.5 bil, supported by enhanced tax compliance and targeted reforms, even as petroleum-linked income faces pressure from moderate oil prices and lower Petronas dividends.
“In our opinion, taxation will remain a focal point, though the reintroduction of the Goods and Services Tax (GST) has been ruled out,” said MBSB.
The government is likely to pursue incremental measures such as higher personal income tax for top earners, carbon tax implementation, and expansion of health-related levies.
The expiry of import and excise duty exemptions for fully built electric vehicles (EVs) is expected to generate significant revenue, while the phased rollout of e-invoicing will modernise tax administration and reduce leakages.
On the expenditure front, MBSB forecasts operating expenditure to increase to RM351 bil, driven by civil service salary adjustments and expanded social assistance programs like Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA).
Development expenditure may moderate to RM80–86 bil, with greater reliance on public-private partnerships to finance strategic infrastructure projects such as the East Coast Rail Link (ECRL), Sabah-Sarawak Link Road, and port expansions.
Regional development initiatives, including incentives for the Johor-Singapore Special Economic Zone, will also feature prominently.
Key priorities include supporting MSMEs through financing and digital adoption, boosting tourism via Visit Malaysia Year 2026, and strengthening Malaysia’s leadership in Islamic finance and the global halal economy.
The semiconductor industry will receive targeted incentives to secure Malaysia’s position in advanced manufacturing, while energy transition initiatives under NETR will accelerate renewable energy adoption, electric vehicle ecosystem development, and carbon capture technologies.
Meanwhile, social policies will focus on housing affordability, labour market reforms, and education quality.
Measures such as progressive wage implementation, TVET expansion, and STEM talent development aim to raise household incomes and prepare Malaysia for demographic shifts.
Broader efforts to enhance healthcare, bridge urban-rural divides, and strengthen the social safety net reflect the government’s commitment to improving living standards.
“Given our expectations of Budget 2026, we expect the Construction sector will continue to be a beneficiary from announcement of government’s yearly budget announcement,” said MBSB.
Judging by 13MP, and MBSB’s expectation of development expenditure, which would be sizeable, and this will likely benefit the construction sector.
Another sector could be the consumer sector, should there be further government support, such as cash assistance.
The Budget 2026 is expected to ensure continued fiscal support to the economy with a slightly larger allocation of likely around RM430 bil (Budget 2025: RM421b).
Malaysia’s fiscal position, meanwhile, is expected to improve further next year on the back of continued output growth and improved fiscal collection.
“We expect Malaysia’s economy to see continued domestic demand expansion in 2026, despite lingering uncertainties in external trade, with Malaysia’s GDP forecasted to grow at between +4.0-4.5% in 2026,” said MBSB.
Similarly, the local corporate earnings shall be sustained by domestic drivers amid external uncertainties. The consensus expects annual earnings growth of FBM KLCI to grow by +6.4% next year.
In 2026, MBSB foresees a situation whereby the local equity market would remain generally sanguine, premised on baseline expectations of a continued resilient macro economy and corporate earnings performance.
Moreover, the prospect of return inflow of foreign funds would generate an additional fillip to the equity market.
On the flip side, MBSB advise investors to tread cautiously and be wary of the evolving risk of a US recession in view of the recent weakness in its labour market situation. —Oct 6, 2025
Main image: The Star
