Austerity push raises pressure on households, SMEs

SHAH ALAM - Malaysia’s austerity measures, introduced amid rising global oil prices and geopolitical uncertainty, are widely seen as fiscally necessary but increasingly difficult for households and businesses to absorb.

Consumer groups and industry leaders warned that without careful targeting and safeguards, the measures could intensify cost-of-living pressures, weaken small businesses and strain essential services.

Federation of Malaysian Consumers Associations chief executive officer Saravanan Thambirajah said while fiscal discipline is justified, its impact is uneven.

“From a consumer welfare perspective, the government’s move towards tighter fiscal spending is understandable given global uncertainty, rising costs and external pressures such as geopolitical tensions.

“Some level of fiscal discipline is necessary, but the reality is that the burden is being shared between the government and consumers and it is not felt equally. The B40 group and increasingly parts of the M40, are already under strain from rising living costs.

“Without adequate cushioning, austerity measures risk lowering living standards, forcing households to compromise on essentials such as food quality, healthcare, education and utilities," he told Sinar Daily.

While efforts to reduce wastage and improve efficiency are positive, Saravanan said any reduction in subsidies or increase in costs directly affects consumers, making it essential that consumer welfare remains the central consideration.

He warned that poorly targeted austerity could weaken essential services relied upon by ordinary Malaysians, particularly if cuts are applied broadly.

“This is why targeting is crucial, rather than blanket cuts. Essential services should be safeguarded and social safety nets should be strengthened instead of weakened during periods of fiscal tightening.

“Stronger coordination between government agencies, non-governmental agencies (NGOs) and other stakeholders is also necessary to ensure policies are implemented effectively and not in isolation.

“A balanced approach between fiscal restraint and social protection is required, supported by continuous engagement and careful policy design," he added.

Saravanan stressed that financial discipline and literacy are increasingly important at the household level as families adjust to tighter economic conditions, warning that high-interest debt can quickly escalate financial strain.

He noted that many consumers still lack the skills to manage limited resources or withstand financial shocks, making stronger practical financial education essential for more resilient households.

At the community level, he said initiatives like food banks and cooperative buying are under pressure due to rising need, calling for better coordination between communities, NGOs, local authorities and the private sector to ensure more targeted and sustainable assistance.

“In the long term, strengthening consumer awareness is key. Practices such as panic buying and hoarding should be discouraged as they can disrupt supply chains and contribute to price pressures.

“The priority must remain protecting consumers, safeguarding essential services and ensuring that vulnerable groups are not left behind," he said.

From a business perspective, Malay Chamber of Commerce Malaysia president and Malay Economic Action Council chairman Norsyahrin Hamidon said austerity measures could weigh on business sentiment, particularly among small and medium enterprises (SMEs).

He said sectors that depend on government spending, official events and public projects are likely to face a short-term contraction in demand. SMEs are more vulnerable as many operate at a micro scale with low margins and rely heavily on daily cash flow.

“The concern is not limited to austerity measures alone, but also the timing and sequencing of multiple policies. Past experience shows that overlapping measures such as e-invoicing, rising compliance costs and subsidy rationalisation can collectively trigger negative sentiment if not implemented in a phased manner.

“Businesses should strengthen value-added elements by focusing on uniqueness, niche appeal and strong branding. Diversifying markets is also important to reduce dependence on government contracts or single digital platforms," he said.

Norsyahrin added that domestic demand will be critical, especially as rising costs reshape consumer behaviour.

He noted that about 80 per cent of households are affected by cost-of-living pressures, suggesting a practical shift in spending habits rather than broad campaigns.

“This is significant because lower- and middle-income groups tend to have a high marginal propensity to consume, meaning their spending circulates more actively within the domestic economy.

“While initiatives such as the Buy Malaysian campaign exist, their impact has been limited. As a result, support for local businesses should evolve into a sustained economic movement rather than remain as periodic campaigns.

“Collaboration among stakeholders is seen as critical to prevent further SME contraction. The government must ensure that austerity measures do not significantly weaken domestic demand while providing targeted support to SMEs," he said.