Policy insights into Budget 2025: fiscal reforms, social protection, energy and climate action

The key initiatives announced as part of Budget 2025 across critical economic, social and environmental policy areas are listed below. More in-depth analysis of each initiative is provided in subsequent sections, accessible through the corresponding hyperlinks.

Fiscal policy and taxes

• Fiscal consolidation: Budget 2025 continues “soft-fiscal tightening”, prioritising revenue growth to reduce the deficit, aiming for a 3.8% deficit-to-GDP in 2025.
• Tax measures: expansion of the sales and service tax (SST) to luxury goods and services. Introduction of a 2% dividend tax on income above RM100,000.
• Development expenditure: shrinking as a share of GDP over the past two years, with concerns over the sustainability of development investments.

Subsidies and social protection

• Targeted subsidies: removal of RON95 petrol subsidies for the top 15% income group.
• Cash transfers: expansion of cash-assistance programmes (e.g., Sumbangan Tunai Rahmah), with a focus on the Sumbangan Asas Rahmah top-up programme.
• Social protection: incremental improvements to pension and social insurance coverage, but gaps remain for informal workers.

Industrial development and competitiveness

• New Investment Incentive Framework: targeted, performance-oriented incentives to promote high-impact investments.
• Electronics and semiconductors: new investments in hard and soft infrastructure for the electrical and electronics sector, including RM1.2 billion mobilised from Khazanah.
• MSME financing: RM40 billion for MSME-related loans and credit guarantees, with a focus on infrastructure, digitalisation and sustainability.

Work, education and training

• Progressive Wage Policy: full implementation in 2025 with RM200 million allocation but concerns over scalability.
• Education: major investments in preschool education and teacher training. Increased funding for skills development through TVET.
• Higher minimum wage: increased to RM1,700, aligned with labour reforms but regional disparities pose challenges.

Energy transition and low carbon development

• National Energy Transition Roadmap (NETR): focus on renewable energy and decarbonisation, with RM305.9 million allocation.
• Carbon tax: introduction by 2026 for high-emitting sectors (e.g., steel, energy) to support low-carbon technologies.
• Solar energy: extension of Net Energy Metering (NEM) programme to promote rooftop solar installation.

Climate and disaster-risk management

• Disaster-risk management: RM13 billion allocated for flood mitigation, infrastructure maintenance and geological-risk management.
• Ecological Fiscal Transfer (EFT): increased funding for biodiversity conservation at RM250 million.
• Marine conservation: RM3.3 million to improve marine ecosystem management.