Household support likely focus of Budget 2027

PETALING JAYA: As with every federal budget, the upcoming Budget 2027 to be tabled on Oct 9 is expected to focus on bread-and-butter issues and in particular, rolling out measures addressing living costs and household incomes, says economists led by CIMB Group Holdings Bhd’s regional head of treasury and markets research Michelle Chia.

“Tax relief, financial assistance and public spending could give the budget an expansionary character at a time when growth is already strong and output is above its estimated potential,” she said.

As the government eyes a general election by the end of next year, she noted that the government would have to balance support for households with growth priorities.

But she cautioned that whether these measures add materially to demand would depend on how far they represent additional support and how much can be offset by revenue gains or spending restraint elsewhere.

“We expect the government to maintain its consolidation path towards a 3% deficit over the medium term, albeit at a slower pace, with the deficit narrowing to 3.4% of gross domestic product (GDP) in 2027 from an estimated 3.5% in 2026,” Chia said, with lower fuel subsidies key to the deficit adjustment.

CIMB Group expects petrol and diesel subsidies to decrease to RM32bil from RM41bil as crude oil prices normalise, which creates space for spending to rebound from this year’s restraint. This would also enable additional allocations for household support, without reversing the overall consolidation path.

Chia believes that with subsidised pump prices unchanged, the projected decline in petrol and diesel subsidies should have little direct effect on household purchasing power, while creating room for higher transfers and selected tax relief.

“The savings help accommodate a RM2bil increase in Sumbangan Tunai Rahmah/Sumbangan Asas Rahmah allocations to RM17bil, potential personal income tax relief and selected welfare measures,” she said, noting that the increased allocations would offset the fading private consumption impetus from the earlier civil service wage hikes.

Chia said employment and private sector wages would increasingly underpin private consumption sustainability. “We therefore expect the budget to provide modest support to domestic demand without generating a sharp acceleration in spending,” she said, as food and energy supply conditions remain inflationary risks, besides stronger household demand.

The government continues a tight path towards narrowing the deficit to 3.5% of GDP. Up until July, higher spending has absorbed most of the revenue outperformance, as total expenditure rose 11.2% year-on-year to RM248.9bil while revenue increased 14% to RM202bil. The deficit stood at RM47bil for the period compared with RM46.7bil in the prior period.

Full-year revenue has been projected at RM359.8bil, up 7.1% and RM16.7bil above budget. Sales and service tax (SST) remains a key source of strength, with a projected 22.2% increase to RM68.3bil for the year, RM8.7bil above Budget 2026 projections.

Corporate tax revenue is projected to grow 7.3% to RM104.9bil, RM1.5bil above budget with RM50bil in personal income tax revenue.

“Higher oil prices should lift petroleum revenue excluding dividends to RM27.5bil, around RM4.5bil above budget, providing a partial fiscal offset to the higher fuel subsidy bill. We retain the budgeted Petroliam Nasional Bhd dividend of RM20bil for 2026.

“Stronger SST receipts and higher petroleum revenue, thus, account for most of the expected revenue uplift relative to the budget,” Chia said.

She expects further relief for middle-income taxpayers under Budget 2027, given the pre-budget statement highlighting measures for middle-income Malaysians.