Anwar putting reforms on the backseat: Singapore Paper

Straits Times says Anwar Ibrahim is putting reforms in the backseat while he ponders on how to win the next general elections. He did say before that he will “take the bull by the horns”. The paper says instead of implementing bold changes, the Prime Minister’s Budget 2025 focused on gradual adjustments, expanding on previous initiatives while slightly modifying consumption and wealth taxes, along with planned energy subsidy cuts. Analysts characterized the measures as politically expedient, lacking in clear definitions, particularly regarding subsidy removal for the ultra-wealthy.

By mid-2025, fuel subsidies for RON 95 petrol will be phased out, and education subsidies for wealthier individuals will be reduced, though critics argue this may be an opportunity lost. Despite stabilizing the ruling coalition since November 2022, experts noted that the fiscal reform efforts were insufficient in addressing Malaysia’s rising fixed expenditures and enhancing its revenue-to-GDP ratio. In the recent fiscal year, tax collection represented only 12.6% of economic growth, a figure projected to ease to 12.5% in Budget 2025.

As Malaysia reduces its reliance on petroleum revenue, which has halved over 15 years, the government faces challenges in ensuring fiscal sustainability. Significant increases in civil service wages and pensions, including a recent 43% pay hike, have contributed to a budget of RM421 billion, marking the fifth consecutive record budget. This increase in fixed expenses has led to potential cuts in development spending and other areas, raising concerns over long-term fiscal resilience, particularly as the country approaches an aging demographic by 2030.

While the Prime Minister acknowledged the necessity of balancing statesmanship with political survival, he is navigating a political landscape marked by opposition challenges and dwindling minority support. Recent economic achievements, such as the ringgit being among the top-performing currencies, have bolstered his position, but analysts suggest that the next general election in early 2028 will present substantial hurdles.

In an environment where political rhetoric targets the ultra-rich, the government aims to frame subsidy cuts as a necessary measure while preserving aid for the poor. The official income survey indicates that the top 15% of earners, referred to as “mahakaya,” includes households earning above RM13,500 monthly. Meanwhile, direct financial assistance for the lowest-income households varies significantly, highlighting the complexities of the government’s approach to social welfare.

As the government considers reintroducing a broad-based goods and services tax (GST) in the future, the Prime Minister has stated that such a move will depend on the minimum wage reaching between RM3,000 and RM4,000. Given the recent raise from RM1,500 to RM1,700, this threshold is unlikely to be met before the next national polls, indicating a strategic focus on winning a second term rather than immediate reforms. Overall, the budget reflects a balancing act between necessary fiscal policies and the political realities of governance in Malaysia.

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