Budget 2027 is expected to prioritise cost-of-living relief, particularly for middle-income households, while maintaining fiscal consolidation without introducing major new taxes, according to Kenanga Investment Bank.
In its Malaysia 2027 Federal Budget Preview, the research house projected that the federal fiscal deficit would narrow to 3.5% of gross domestic product (GDP) in 2027 from its estimated 3.8% in 2026, supported by sustained economic growth and improved spending efficiency.
Kenanga expects the government to balance household assistance with investment in strategic sectors, including artificial intelligence (AI), semiconductors, renewable energy and digital infrastructure.
Budget 2027, scheduled to be tabled on Oct 9, will be the fifth MADANI Budget and the second under the 13th Malaysia Plan (13MP).
No GST Return Expected, SST To Remain
Kenanga does not expect the government to reintroduce the Goods and Services Tax (GST) or implement major new tax measures in Budget 2027.
Instead, it anticipates greater emphasis on improving revenue collection through the expanded Sales and Service Tax (SST), e-invoicing, the Global Minimum Tax and stronger tax administration.
The research house said the government’s willingness to study certain features of GST within the existing SST framework should not be interpreted as a signal that the broad-based consumption tax will return.
Potential improvements include better invoice matching, reducing cascading tax effects and reviewing exemptions.
Kenanga expects federal revenue to decline slightly to RM365 billion in 2027 from its projected RM370 billion in 2026, partly reflecting lower petroleum-related income.
It cautioned that Malaysia’s relatively narrow revenue base remains vulnerable to fluctuations in oil and commodity prices, underscoring the importance of longer-term revenue diversification.
STR, SARA Allocations Could Increase Further
On household assistance, Kenanga expects the government to expand targeted support to cushion rising living costs, particularly for the M40 and lower-income groups.
Combined allocations for Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) reached RM15 billion in 2026, the highest on record.
The research house anticipates a further increase in 2027 as the government strengthens targeted assistance while continuing subsidy rationalisation.
Kenanga also expects higher allocations for the Progressive Wage Policy, Technical and Vocational Education and Training (TVET), workforce reskilling and digital talent development.
It said Budget 2027 could broaden access to subsidised AI tools and structured training programmes to improve workforce productivity and prepare Malaysians for higher-value employment.
Government Spending Projected At RM448 Billion
Kenanga forecasts federal net expenditure of RM448 billion in 2027, slightly lower than its RM453 billion estimate for 2026.
Operating expenditure is projected to decline to RM364 billion from RM369.5 billion, mainly on expectations of a lower fuel subsidy bill.
However, expenditure on civil service salaries, pensions, healthcare, education and targeted assistance is expected to remain substantial.
Development expenditure, meanwhile, is projected to increase to RM85 billion from RM84 billion as the government accelerates strategic infrastructure projects under the 13MP.
Kenanga identified transport connectivity, industrial development, digitalisation and energy transition as potential priorities.
These include continued implementation of the Penang LRT Mutiara Line, MRT3, East Coast Rail Link (ECRL) and supporting infrastructure for the Johor Bahru-Singapore Rapid Transit System (RTS) Link.
The research house also expects continued attention on the Johor-Singapore Special Economic Zone, the National Semiconductor Strategy, data centre infrastructure, renewable energy and battery storage development.
Malaysia’s GDP Growth Forecast At 5% In 2027
Kenanga expects Malaysia’s economy to expand by 5% in 2027, moderating from its 5.3% growth forecast for 2026.
It anticipates the Ministry of Finance will set an official 2027 GDP growth target of between 4.5% and 5.5%.
Private consumption is expected to remain a major growth driver, supported by employment conditions, income growth and targeted household assistance.
Investment in electrical and electronics, data centres, renewable energy and advanced manufacturing should also support economic activity.
The research house expects the services sector to benefit from tourism and the hosting of the 34th Southeast Asian Games in 2027, while construction activity should remain supported by major infrastructure projects.
Nevertheless, external risks, including trade tensions, geopolitical uncertainty and weaker global growth, could weigh on Malaysia’s economic performance.
Government Debt Ratio Expected To Ease
Kenanga projects federal government debt to decline as a share of GDP to 62.2% in 2027 from 63.7% in 2026.
However, the outstanding debt amount is expected to increase to approximately RM1.49 trillion in 2027, indicating that the improvement in the debt ratio would be driven primarily by economic growth rather than a reduction in borrowing requirements.
Debt servicing costs are projected to ease to 16.5% of government revenue from 16.8%, although they would remain above the government’s 15% threshold.
The research house cautioned that its fiscal projections remain sensitive to global oil prices.
Its existing forecasts assume Brent crude averages US$80 per barrel in 2026 and US$74 in 2027, although these assumptions are under review for upward revision to approximately US$90 and US$80, respectively.
Kenanga said the ability to sustain fiscal consolidation would ultimately depend on expenditure discipline, stronger revenue collection and continued economic growth, as Malaysia works towards the 13MP objective of reducing its fiscal deficit to below 3% of GDP by 2030.
