2026 Budget: Spend smart, not hard, economists call for balance

SHAH ALAM – Malaysia’s 2026 Budget, set to be tabled on Oct 10, should strike a careful balance, with experts emphasising that the key lies in spending that stimulates growth without undermining fiscal sustainability.

Universiti Teknologi Mara Malaysian Academy of SME & Entrepreneurship Development coordinator of the Student Entrepreneurship Centre Dr Mohamad Idham Md Razak said despite fiscal constraints, there was still room for the government to spend strategically by prioritising high-multiplier investments.

He said such investments could stimulate growth, create jobs and ultimately expand the revenue base.

"Prudent borrowing, coupled with stronger tax compliance and digitalisation of revenue collection, allows room for measured expansion without compromising fiscal discipline," he told Sinar Daily.

Idham cautioned that both overspending and underspending carried risks.

"If spending expands too aggressively, risks such as inflationary pressures and rising debt could emerge.

"However, if the government holds back excessively, it risks slowing recovery, dampening confidence and leaving vulnerable groups behind," he said.

He added that calibrated spending was needed to stimulate growth while safeguarding fiscal discipline.

To expand fiscal space while maintaining stability, he said Malaysia can strengthen revenue collection through digitalisation, broaden the tax base in a progressive and fair manner and explore sustainable financing tools such as green bonds or public-private partnerships.

"At the same time, improving efficiency in government spending ensures every ringgit delivers maximum impact for the rakyat," he said.

Meanwhile, economist and policy specialist Dr Geoffrey Williams noted that fiscal headroom remained tight but the government had flexibility through subsidy rationalisation.

He said reallocation of RM17 billion in expected savings from subsidy rationalisation provided money without undermining fiscal discipline.

He also warned of the dangers of excessive spending.

"If the government expands spending too much, it risks raising debt and deficit costs, which eventually leads to higher taxes that harm everyone.

"It is currently spending at about the right level to support economic growth, but changes in the allocations to support incomes would be beneficial," he said.

He also proposed introducing an electronic payments tax (EPT) which would put tiny tax on electronic transactions.

He added that a one per cent EPT could raise RM28.8 billion, while starting with 0.25 per cent would generate RM7.2 billion, with room to increase gradually over time.