Malaysia to raise minimum wages, expand tax relief in spending boost for 2027 budget

Asia Malaysia Prime Minister Anwar Ibrahim on Friday (Oct 9) pledged to implement reforms that he said would allow the country's strong economic growth to trickle-down to ordinary Malaysians. Malaysia Prime Minister Anwar Ibrahim, who is also the Minister of Finance, showing the Budget 2027 booklet at the Ministry of Finance in Putrajaya on Oct 9, 2026. (Photo: CNA/Fadza Ishak) KUALA LUMPUR: Malaysia unveiled a host of tax relief measures on Friday (Oct 9) and said it would raise minimum wages next year, as the government looked to boost household incomes and support small businesses ahead of a possible election despite growing fiscal pressure from a jump in global oil prices.Speaking in parliament, Prime Minister Anwar Ibrahim proposed an expansionary budget of RM459.8 billion (US$112.5 billion) for 2027 and pledged to implement reforms that he said would allow the country's strong economic growth to trickle-down to ordinary Malaysians."Our question is not just how the economy is to be built, but whether its growth will open up space for families to build savings, for workers to enjoy more dignified wages, for small businesses to continue to grow," he said.The budget allocated for 2027 is higher than the RM444.1 billion that had been allocated this year - which itself had been revised upward from the initial RM419.2 billion. It encompasses the government’s operating and development expenditures. Malaysia Prime Minister Anwar Ibrahim, who is also the Minister of Finance, showing the budget 2026 booklet at the Ministry of Finance in Putrajaya on Oct 9, 2026. (Photo: CNA/Fadza Ishak) Operating expenditure covers the government’s daily running costs - such as civil servants salaries and pension payments - while development expenditure refers to funds allocated to create long-term assets like infrastructure, for instance.The 16th general elections (GE16) must be held by February 2028 although Anwar has said he is open to considering calls for an earlier vote amid growing tensions within his unity government. The budget also comes months after Anwar’s Pakatan Harapan (PH) suffered heavy setbacks in the Johor and Negeri Sembilan state elections this year, adding to political pressure on his administration ahead of GE16 and just weeks before the Melaka state election that will be held on Nov 14. Commuters descend an escalator at Pasar Seni LRT station in Kuala Lumpur. (Photo: CNA/Fadza Ishak) The minimum wage, currently RM1,700 per month, would be raised to RM2,000 from June next year, though micro, small, and medium enterprises earning less than RM50 million a year would be exempted from the measure for now to allow for business adjustments to be made, Anwar said.The prime minister noted that while the minimum wage only raises the lowest income level for workers, wages for skilled workers remain disproportionate to their qualifications. Therefore, the government will implement reforms to the employee income framework by introducing a minimum starting salary of RM2,500 per month for semi-skilled workers and graduates. “The government also welcomes the commitment by government-linked investment companies and government-linked companies to raise the living wage benchmark to RM3,400 per month, up from RM3,100,” said Anwar. This is set to benefit 230,000 workers. Anwar also highlighted support for gig workers in this year’s budget announcement. He added that the government would jointly fund a RM160 million package with ride-hailing giant Grab to boost net income and improve the welfare of e-hailing and p-hailing workers, starting next year“Some 600,000 Malaysians earn a living as e-hailing drivers and p-hailing delivery riders. The Madani government will safeguard gig workers’ welfare by providing more comprehensive protection,” he said, referring to gig-economy workers who provide app-based transportation and delivery services. A senior citizen is seen here sweeping outside of his house at a PPR housing area in Kuala Lumpur. (Photo: CNA/Fadza Ishak) PERSONAL INCOME TAX RATES REDUCED The government will increase individual income tax relief from RM9,000 to RM12,000 and reduce tax rates for selected income brackets to ease the cost-of-living burden on middle-income earners. The increase in individual income tax relief threshold marks the first revision since 2010, said Anwar. “The government hears the concerns of the middle-income group (M40), who have patiently persevered despite also being squeezed by the cost of living,” he said. Under the revised tax rates, the rate for individuals with taxable income between RM70,000 and RM100,000 will be reduced to 18 per cent while those in the RM100,000 to RM150,000 bracket will see their rate lowered to 24 per cent. The prime minister also announced expanded tax reliefs covering a wider range of expenses. For example, medical tax relief will be expanded to include postpartum care services while relief for the care of parents and grandparents will cover all caregiving expenses rather than being limited to healthcare costs. OUTLOOK FOR 2026 GROWTH RAISEDMalaysia’s economy was expected to expand by between 4.2 per cent and 5.2 per cent from a year earlier in 2027, remaining resilient on sustained domestic demand, according to 2027 fiscal and economic outlook reports released with the budget.Malaysia had in March raised its growth forecast for 2026 on a better-than-expected economic performance and hiked its projections further in its latest outlook.Economic growth in 2026 was now expected to come in at the upper end of the projected range of 4.8 per cent to 5.3 per cent, faster than the previous estimate of 4 per cent to 5 per cent, the government said. The economy grew 5.7 per cent in the first half of 2026.Headline inflation was forecast to range between 1.8 per cent and 2.8 per cent in 2027 from a revised estimate of 1.5 per cent to 2.5 per cent in 2026, reflecting carry-over effects and lagged transmission of higher energy, food and other input costs, it added. Public housing in Kuala Lumpur, Malaysia. (File Photo: CNA/Fadza Ishak) PETRONAS INCREASES DIVIDENDS TO GOVERNMENTThe 2027 spending plan, an increase of 3.6 per cent over this year’s revised budget of RM444.1 billion, includes development expenditure of RM83 billion and operating expenditure of RM376.8 billion, according to the government reports.Revenue was seen rising by 4.7 per cent to RM380.8 billion in 2027, from a projected RM363.6 billion this year on the assumption of resilient albeit moderating economic growth, the reports said.State energy firm Petronas, a significant contributor to public coffers, will pay the government a dividend of RM32 billion in 2027, up from a revised estimate of RM27 billion this year. Petronas was initially due to contribute RM20 billion in 2026.Malaysia's annual subsidy bill has ballooned amid higher energy costs from the US-Israeli war on Iran, prompting a narrow upward revision of its 2026 fiscal deficit target to 3.6 per cent of gross domestic product from 3.5 per cent, the reports showed. Higher fuel costs are expected to push subsidies and social assistance spending up to RM74.5 billion this year, a jump of 34.7 per cent from 2025's expenditure. In 2027, the government's subsidy spend was forecast to decline marginally to RM72.7 billion.Anwar, however, downplayed worries of fiscal slippage, saying Malaysia remained committed to its medium-term fiscal objectives. In 2027, the deficit was projected to decline to 3.3 per cent, he said.“This does not represent a departure from fiscal consolidation. It demonstrates the value of having built the capacity to respond when circumstances demand it,” he said in the foreword to the fiscal outlook report.The budget statement will be debated at the policy level for eight days starting Oct 12, followed then by responses from the relevant ministries from Oct 26, according to media reports.