This is the key highlights with my comment in italic font immediately after each point.
Budget Size: The largest in Malaysia’s history, totaling RM421 billion. Comment: Increase expenditure.
Tax Adjustments:
New dividend tax for individuals at a 2% rate. Comment: When a KLSE-listed stock pays a dividend to its shareholders, they receive 98% of the dividend. While this may not affect most small retail investors (minimum 100,000 dividend), the issue of double taxation could deter larger multinational corporations (MNCs) from making investments. For these companies, Malaysia is just one of several potential investment destinations, and tax considerations play a crucial role in their decision-making process.
Personal tax relief from RM9K to RM12K and extended tax rebates for those with chargeable income less than RM70K. Comment: Crucial-must-remember mantra: Lower lower income tax is always welcomed.
Minimum Wage: Increase in the minimum wage to RM1,700 per month. Comment: As a proponent of free market economics, I believe that higher minimum wages often do more harm than good. What’s certain is that business costs will rise, while the creation of new jobs will likely stagnate at best. This could lead to one person doing the workload of two or more. Why? Because many businesses may opt not to hire entry-level workers (who typically fall under the minimum wage group) and instead choose to employ more experienced workers, even if they have to pay more. The reasoning is simple: experienced workers can contribute immediately and require less training. The higher minimum wages as it reduces the incentive to try out fresh inexperience workers, will worsen as a result.
Social Welfare and Cash Aids: A record RM13 billion has been allocated for cash aids, indicating a strong focus on social welfare. Comment: nil
Healthcare and Education:
Investment in social security schemes like SOCSO for rehabilitation services.
Changes in education subsidies, particularly reconsidering subsidies for wealthier families. Comment: Sound good but could it be implemented properly?
Environmental and Economic Sustainability:
The introduction of a carbon tax and adjustments in the windfall profit levy on palm oil to encourage sustainable practices. Comment: Nil
Public Transport and Automotive Sector: There’s a noted revenue from automotive-related taxes, indicating a balance between promoting public transport while acknowledging the revenue from automotive sales and licensing. Comment: Promoting the use of public transport should be continue and encouraged.
Development and Operational Expenditure: Out of the total budget, RM355 billion is for operational expenditure, and RM86 billion is for development, excluding contingency savings. Comment: nil
Tax Relief and Incentives: New income tax relief measures to encourage savings in health, education, and housing, along with incentives for retirement savings through EPF contributions and other schemes. Comment: Lower personal income is always welcomed
Affordable Housing: Emphasis on providing affordable public housing. Comment: Good news for first home buyer
Fiscal Discipline: Efforts to reduce the fiscal deficit, with new debt expected to decline. Comment: The current deficit is at 4.3% and the new goal is to reduce to 3.8% in 2025. Pay with what?
Comment: With the increase in total government expenditure alongside efforts to reduce debt (4.3% to 3.8% budget deficit), covering the additional spending will require an expansion and increase in overall tax revenue to achieve these goals. As mentioned throughout the speech, we can expect to see the introduction of new taxes or increases in existing taxes in 2025.
A more effective & sustainable approach would be to reduce the size of government (admittedly require a lots of political will), cut government spending, and encourage private enterprises to drive economic growth. High overall taxes, combined with the cost increases from raising the minimum wage, will reduce disposable income to some extent. There’s a balancing act at play: on one hand, business owners facing higher labor costs will likely pass those costs onto consumers and forgo capital that could have been used for business expansion or product development in order to pay for the increased wages. On the other hand, workers (particularly lower-income earners) will see an increase in their monthly income.
The question remains—will the higher minimum wage (an additional RM200 per month) be enough to offset inflationary pressures? And will Malaysia’s business environment remain conducive to further expansion? Only time will tell.
MOF X
Budget 2025 – MOF
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