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Almost 3 weeks after Budget 2027 was tabled, how is the public responding to the budget? On this episode of #ConsiderThis, Melisa Idris speaks with Treasury Secretary General Tan Sri Johan Merican about the choices behind Budget 2027. With the government facing competing demands to meet public needs, manage rising subsidy costs, and reduce the fiscal deficit, how does it decide what the country can afford and what difficult trade-offs lie ahead?
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00:18Hello and good evening. I'm Melissa Idris. Welcome to Consider This. This is the show
00:22where we want you to consider and then reconsider what you know of the news of the day. It's
00:27now almost three weeks since Budget 2027 was tabled and we've all had some time to deliberate
00:34and digest the allocations that were announced. But behind the announcements were difficult choices.
00:41Choices in trying to balance public needs and subsidy costs and the government's commitment
00:46to fiscal consolidation. So what priorities shaped those decisions and those trade-offs? Well joining
00:53me on the show to help us get a sense of the thinking that went into Budget 2027, I have
00:59with me Tan Sri Johan Mahmud-Berikan who is the Secretary General of Treasury under the Ministry
01:04of Finance. Tan Sri, thank you for coming on the show with me today. Welcome. Thank you
01:08so much Melissa. Glad to be here. So slightly over two weeks since the budget has been tabled.
01:14I'm quite curious to know, since I know you've been making the rounds, talking to people, being
01:18on panels, having a discussion about the allocations, what are you hearing most from people when they
01:24come up to you and they ask questions about Budget 2027? What is your sense of how the public
01:31is responding to the budget and what are they coming up to you specifically to talk about?
01:36Well of course they're saying it's all wonderful. No, no, of course I'll say that.
01:40I knew you were going to start with us. Thank you for the question. I think first one of the
01:46approaches which come to me is people have mentioned how it's an inclusive budget. You
01:50know, perhaps in the past when I would do the rounds post-budget, people would say, oh, you
01:55know, we forgot about us M40. I think this one, I think Prime Minister was very keen to ensure
02:00that this was an inclusive budget, a budget for all Malaysians, whether you're B40, M40,
02:05or T20. I mean, for example, you know, the B40 would have their Bantuan, you know, STR,
02:11Johan Rahma to help them with the cost of living. But at the same time, this budget also
02:15had something for the M40s, we had the tax reductions.
02:18Okay, is that what people are coming up to, you're talking about the tax reductions?
02:21It was very interesting. It was released like for pets and for sport shoes. It seemed to
02:25have caught, I think, a lot of conversation. I think that was also a reflection of how the
02:29government wants to show that in terms of the tax system, we want to ensure that we're
02:32relevant to the lifestyles of the nation.
02:33Why do you think that resonated so much?
02:36It's strange because I think sometimes maybe in certain segments of the society who felt
02:41that there was nothing in the budget that spoke to them. And I think when we understood,
02:47so for example, when we improved on the reliefs, like for example, there's one which extended
02:51healthcare to cost of confinement, you know, post-delivery, or it spoke to those who are
03:00in running clubs because I guess sport shoes was relevant to that. And I guess pets maybe
03:04is more something that's relevant to today's lifestyle. And even the fact that we extended
03:09it for AI subscriptions. So I guess it was something that was seen as more current and
03:15relevant perhaps.
03:16I will confess that in the newsroom when it was being tabled, when the pet location was
03:21announced, there was a round of applause. So I think people were responding quite well
03:25to that. Can I ask you about what you think hasn't been accepted well? Or the public has
03:32understood it differently from when it was initially announced? Has there been anything that you feel
03:37has missed the mark in terms of its narrative?
03:44Besides communicating that this is an inclusive budget for all, I think the Prime Minister was,
03:48you know, he coined this Wa'at National. You know, every time it always comes up with a
03:52new Malay word. And this is very much this idea of a covenant and or social contract. And
03:57this is the idea that it's not just about government saying this is what we want to do. It's about,
04:02you know, Malaysia, whether you're rakyat, business. This is where the government ambitions for the
04:11nation and come with us on this journey. And I think that that sense of partnership may perhaps
04:16maybe not many people have understood it as well. So for example, so government articulates that,
04:22you know, cost of living is a priority for all Malaysians. Yes, the government can do things like
04:26Johan Rahma or Bantuan Sara or STR. But we also need the employers to work with us on wages, you
04:34know,
04:35helping to raise wages. Government can increase the minimum wages, but we also spoke to them about
04:39having to also increase wages for graduates, improving the incomes of, for example, e-hailing and p-hailing,
04:45working with the platforms. The Prime Minister also spoke about working with the different state
04:50governments so that we also would be funding and supporting the developments of each different
04:57state according to their circumstances. For example, in Sabah, he was talking about basic utilities like
05:01electricity. So that was a focus for federal government to support. Or for example, in Klantan,
05:06you know, supporting flood mitigation or even in Selangor, also in terms of flesh or even
05:13Penang, about supporting high-tech finance. So it's again, trying to meet the needs of different
05:19stakeholders, different communities. And I guess Budget 27 is an invitation to work together with
05:26government to achieve the country's ambitions. Well, I think sometimes we often approach Budget 27 as
05:32like a private citizen, right? We think about what's in it for us, what kind of goodies, what kind of
05:37tax
05:37reliefs and the like. But you're right, there are many stakeholders to manage, most of all businesses
05:43and industry. Talk to me, I'm trying to get behind, into the thinking that was the government, the
05:50government had in drawing up Budget 27. This budget was drawn up during a difficult time, during the
05:55crisis, the Middle East energy and global supply crisis. Help me understand the frame of mind of the
06:00government, the assumptions that were made about not just the scale, but the impact and the, I guess,
06:07the damage and scarring that this crisis would have on the economy. So what were the assumptions that
06:13were made going into Budget 27? So on one hand, you're right. We're currently in a less than
06:19favourable global environment, especially with the protracted Middle East crisis and oil prices remain
06:26above US$100. So what does the government do in such a context? But on the positive point, I think
06:32we should
06:32first anchor that Malaysia actually been doing very well. In fact, much better than most of its neighbours.
06:37As you know, second quarter growth was at 6% and we're on track to certainly achieve potentially more
06:44than 5%. Our official forecast has been revised upwards to between 4.8% to 5.3% for this
06:50year.
06:51Unemployment is low. First quarter is 2.9%, now about 3%. We're effectively at full employment. So the
06:57economy is on solid grounds. But given this outlook, therefore one part of the thinking budget is to
07:06ensure that we present an expansionary budget. Expansionary starts from a fiscal point of view and
07:13that's why you see an increase in the expenditure, our operating expenditure and development expenditure
07:18from last year was about $419 billion. For Budget 27, we're targeting about $460 billion. But at the same
07:25time, it was important, you know, and budget is always about trade-offs. On one hand, we need to be
07:30expansionary, taking into account the downside risks and the need to ensure that government spending supports
07:37the momentum of economic growth. But at the same time, we still need to signal our commitment towards
07:44responsible fiscal management. As you know, 2023, Prime Minister launched the Fiscal Responsibility Act.
07:51And so we have this commitment to gradually reduce our fiscal deficit down to 3%. It was
07:57previous government 5.5% 2022. It was brought down gradually even down to 3.7% last year. So
08:03we've
08:03positioned a budget next year of 3.3% deficit with a view of reaching our 3% target by
08:102028.
08:10So that's a commitment. So we're having to balance increasing expenditure but also gradually reducing
08:16the deficit to show that we're expansionary, taking into account the global scenario. But at the same
08:21time, we're also signalling that we continue to be responsible in the way that we manage government
08:26resources. Okay. Can you talk to me a little bit about the deficit? So wonderful that there is this
08:31commitment to reduce the deficit. But how much of that 3.3% projection is an improvement in terms of
08:42the economy growing versus a restraint in spending, in government spending. Talk to me a little bit
08:48about how do we understand progress of the 3.3% in nominal terms, if you can?
08:55No, but perhaps maybe just to show you where we've been. So we've started, you know, it was 5.5
09:00%
09:00in 2022. The government was committed to a gradual consolidation of deficit. So we reduced it to
09:055% in 2023, 4.1% in 2024, 3.7% in 2025. This year, not much of a
09:13reduction. It's only a
09:13modest thing to 3.6%, partly taking into account the impact of the Middle East crisis. But we wanted
09:19to show that there was still this steady projection, steady reduction towards the ultimate goal of 3%.
09:24Now, that obviously means that to some extent, it limits perhaps the spending pool. But it's still
09:32within the frame that we're able to afford an increase from last year, partly because we still have,
09:40you know, continued growth of our revenues. And that helps to support this, shall we say,
09:46balancing act of spending more, but also reducing the deficit.
09:50Okay. So spending more and a large part of our expenditure, operating expenditure, 82%,
09:56is going into paying for services that we actually have already. This is our standard every year.
10:04Is there anything that's happening in the way government is thinking or operating to make sure
10:09that we're spending that money better? That every time, every year budget comes around,
10:14that we have a huge chunk of OPEX, that we're actually spending that money better rather than
10:19simply funding existing services.
10:21You know, one thing that the Prime Minister always focuses on is, as part of, you know,
10:26the Economy Madani framework has the raising the ceiling for restructuring the economy,
10:29raising the floor in terms of livelihoods of people. But there's this core about governance
10:33reform. And beyond the reform for sustainable fiscal, there's also the reform in terms of
10:39good governance. And that includes, for example, the Procurement Act. The Procurement Act was passed
10:44through, Government Procurement Act was passed through Parliament this year. And next year,
10:48it becomes effective. And one of the announcements that the Prime Minister made during the budget
10:51speech was that, going forward, we will make public all government contracts, you know,
10:55who gets it, what's the price. As again, a check and balance against government, if we will revert
11:00back to the bad old days of direct negotiated contracts, you know, against the current policy
11:06of really focusing on tenders, you know, there's that possible check and balance to call this out
11:10because it's going to be made public disclosure. The Prime Minister also announced this commitment
11:15to establish a State-Owned Enterprises Act. And again, that's also part of improving controls
11:22and put it very simply, how do we then prevent or avoid a recurrence of another 1MDB or Tabung
11:28Haji, fill in the blanks. I think that was an important part, again, of this continued reform
11:33agenda by the Prime Minister.
11:34Can you tell me more about that? I'm quite curious to know. So MOF will draft, well, I guess this
11:39will
11:39be mainly under MOF with the State-Owned Enterprises Act. Can you talk to me a little bit about that?
11:44How might that change the way public money is allocated or how public projects are managed?
11:52Yes. So beyond, you know, we spoke about tender for procurement. But a key part of government
11:58companies or statutory bodies, they also make investment decisions. And so I think if you see
12:04in terms of some of the, I guess we talked about the 1MDB scandal, even the leakages that happened
12:09to Tabung Haji, some of these problems arose through misguided investments. And so part of these controls
12:16that to be instituted within the State-Owned Enterprises Act is to look again at how to ensure that there
12:21are
12:21better controls when major government agencies, institutions or companies make some of these
12:27investment decisions. Because ultimately, if it goes wrong, the government, i.e. the taxpayer,
12:33would have to bear those losses.
12:34Okay. So this is quite interesting. And I'm quite curious to know how this Act is going to be
12:39spelt out. So let's come back to budget and the operating expansion, development expansion. Can we just
12:47come back to that very quickly? So 82% of the budget is operating expenditure, 18% development
12:53expenditure. Is that a ratio that you're happy with? Do we, is there a way for us to be thinking
12:58about this ratio differently in the years to come, the budgets to come?
13:05So even under the fiscal responsibility act, we actually put in a minimum spend for development
13:11expenditure and really development expenditure is, as you quite rightly point out, where we can really
13:16help promote development around the country. And in the approach that the Prime Minister took,
13:20you know, particularly in this budget, it's how do we ensure, as I mentioned, that we cater for the
13:26different needs of the different states? How do we ensure that we cater for the needs of each state
13:32according to their level of development and the priorities of state government? In fact,
13:36Prime Minister, you know, I guess, being, you know, champion of keadilan and justice,
13:42has ensured that in every budget, we ensure that there's an increase in the development expenditure
13:48for every single state year on year, irrespective, you know, all states, irrespective of whether they're,
13:54you know, aligned with the government or not. And I think that's part of ensuring that this is a budget
14:01for all.
14:01So, every budget, every state's development expenditure budget is increased, is that right?
14:06Yes, yes. And has been?
14:07Without exception.
14:08Okay.
14:09With every budget under the current Madaliga.
14:10Is it an equal across the board?
14:13Well, no, you know, it can't be equal. Obviously, there are very different development needs. You know,
14:17obviously, you can imagine Sabah and Sarawak have very large development needs. So, they typically get the
14:22largest allocation, you know, for example, because, you know, they still need a need for,
14:26uh, in Sabah, you know, electricity, water, road infrastructure is still a very critical part.
14:32And so, perhaps, you know, there's obviously more in terms of rural roads, they would obviously get
14:36more than, say, a smaller state.
14:39I'm sorry.
14:39You said, um, you said in the beginning, a line that really stuck with me, you said,
14:43budgets are all about trade-offs. And I couldn't agree more. Talk to me a little bit about some of
14:47the
14:47tougher trade-offs that you have had to make as the, um, as the Secretary General of Treasury.
14:53When you think, what were the things that the government had to choose not to include in this
14:59budget? Can you give us specifics or an example?
15:02You like it or not, when we have to demonstrate responsible and prudent fiscal management,
15:10we have to demonstrate a reduction of deficit. Once you have a deficit target, that immediately caps
15:18what's your, what's your total expenditure. And, and within that, you then obviously have to
15:24prioritize. Now, obviously, you know, all my colleagues in all the different ministries,
15:28you know, they have, I guess, each of them have their own...
15:31Have come to you with a list of their priorities.
15:33...shopping lists, as it were. But, and I think that's, I mean, but, but like it or not, I mean,
15:38I'm sure there's no different than here in Astro, I'm sure there's a lot of...
15:40Everyone has a list.
15:41Everyone has a list and, and we always have to, to make those, um, decisions or trade-offs.
15:47But having said that, uh, the government always maintains that the number one priority remains
15:52education and health. Those receive the largest budget. And the prime minister, uh, you know,
15:58he's always said he's not wanting to be a prime minister known for, you know, yet another skyscraper.
16:02You know, he really wants to make sure that, um, wants to get the basics right.
16:06So, I don't know, you, you, you've heard the, the, the theme of the budget,
16:10the menggapai di langit, mengakar di bumi. So the idea is that, well, we have these lofty
16:15ambitions for the economy, i.e. we want to be a leading economy in Asia. We want to embrace AI
16:20and the latest technology. We still want to be mengakar di bumi, still grounded in our values,
16:26grounded in the bread and butter issues for the rakyat. And so, even when we looked at healthcare,
16:31we wanted to increase the allocation. It's things like resolving the issues of contract
16:35doctors. We want to ensure that there's enough doctors. We wanted to reduce waiting times in
16:39hospitals, making sure we also optimize on the capacity in the private healthcare by doing more
16:44outsourcing, even investing in electronic medical records, again, to help the customer journey in
16:50public hospitals. In education, again, it's not about building, you know, huge schools. It's about
16:55a lot of it is towards a big increase in maintenance or helping to ensure that we add additional
17:01classrooms where there are, you know, dense or schools which have many students, ensure that we
17:07address, you know, dilapidated schools and clinics around the country, fixing potholes. These are sort
17:12of priorities, you know, really getting the basics right. You've been doing budgets for a while now,
17:17right? A little bit. How many years has that been? How many budgets have you, I guess,
17:22commandeered or steered towards or been in the driver's seat? I think it's almost 10 since 2018.
17:27Almost 10. Okay. Do they shift a lot every year in terms of having this focus, right? You talked a
17:34little bit about this, having a focus on of the people of being inclusive. Have you noticed,
17:39is there a shift every year in terms of the theme or the thinking behind the budget? Or does it
17:44remain relatively the same? The reason why I'm asking is there, is there room in the budget,
17:49in drawing up a budget for radical moves, for radical thinking, for restructuring or big reform moves?
17:59Is there, is there room for that in the budget or is that not the place to do it? If
18:03anything,
18:04there's been a lot of reform under the current government. This is the fifth budget. But on one
18:09hand, there's this consistency. There's this economy in Madani framework, you know, it's been consistent.
18:14Every budget for the, now this is the fifth in the series, always has a focus on raising the ceiling,
18:20restructuring the economy, raising up to higher value added activities, ensuring that at the same
18:25time we raise the floor, that whatever wealth is generated from the economy is translated to better
18:29livelihoods of people. And in the middle is a focus on governance reform. So that's always been
18:34the broad anchor that's used for the budget every year. But at the starting point, when this
18:40government first came in, you know, it inherited, you know, what we would call a stretched fiscal
18:45position, high deficit, high debt. And so the initial focus was, how do we increase our revenue
18:52base? And so, you know, we had to introduce things like new taxes, like dividend tax, capital gains tax,
18:58we widen the SSD. But at the same time, we also needed to address costs. And whilst, as you mentioned,
19:04much of it is locked in, a significant portion was subsidies. And if you had told or asked Johan in
19:102023, would we have addressed subsidies of electricity, chicken, egg, diesel, petrol, you know,
19:19I would have thought you'd be kidding because often we think of those as political sacred cows that no one
19:25would touch. But I think credit to the Prime Minister, he said, no, we need to ensure sustainability of
19:32the country's finances for the benefit of not just the current generation, but also future
19:37generation. So these were reforms, you know. And I dare say that, you know, for something like
19:43Budi 95, I don't think you have anything like this anywhere else in the world where your rakyat
19:48continues to benefit using an identification card, buying petrol at $199, whereas the rail price is more
19:54than double. We now also have Sara, where again, you use on my card and able to buy, you know,
20:00groceries at least for the B40. But it does cost 40 billion ringgit for the country.
20:06Yes. But the alternative would have been worse if we had continued in terms of the blanket subsidies
20:11of before, where everyone, you know, where not even Malaysians, even businesses, you know,
20:17were buying diesel and bringing it to their factories or construction sites. And at that time,
20:22even anecdotally, we had also smuggling from neighbouring countries, obviously buying fuel in our
20:28country taking it to theirs. And especially given the Middle East crisis, this was such an important
20:34reform that helps at least address that form of leakage so that we ensure that whatever subsidies
20:41or resources that we have, at least are focused on benefiting Malaysians.
20:45So clearly, you're very proud of this budget. Have you had a chance to read the shadow budget that
20:50Versauma released? What did you think of it?
20:52I think it's their job to always, well, criticise or provide an alternative view.
21:03But rather than pick holes in theirs, I think from even the responses that we've had, I think there's
21:11a recognition that the government, one, has been quite consistent in terms of its policy direction.
21:16And I think that's certainly helped in terms of providing that market acceptance, investor confidence.
21:23I mean, you know, we don't, we can just don't look very far. In last year, our ringgit was,
21:28you know, appreciated 10% against the US dollar. It was the best performing in Asia. International
21:33recognition in the form of our IMD competitors ranking going up from, you know, over 30. Now we're at 15th
21:40place. So, you know, there's, there's very credible in terms of recognition, I think,
21:47of the reforms that have been undertaken by, by this, by this government.
21:51Okay. So in the 10 budgets that you've been in the driver's seat, how many have had to be revised
21:59upwards? Have there, has there been changes in the original spending estimates for budgets? Usually,
22:07last year's budget had to be revised upwards by 22%, 22 million ringgit. Is that, is that typical for
22:13budgets that we have to revise upwards, whatever we have originally estimated?
22:19We try our best to keep within the overall envelope of, of the budget. So sometimes even if we have
22:27to do
22:27an increase in one ministry, we normally try to then show their savings in another ministry. But
22:32certainly this year, 2026, when we originally did our, prepared our budget last year,
22:38it was premised on an assumption of oil prices being at US dollar 65. Obviously, now it's well
22:44above 100. And so when we originally budgeted in 2026, for budget 26, it was a budget of only 15
22:51billion for fuel subsidies. Now, as you said, is gone above 40. And part of it, we've had to finance
22:59it
22:59through restructuring or reprioritisation of expenses, some of it through at least additional
23:09revenues that come from oil and gas. But certainly, that's an area where we certainly have to revise
23:13upwards. Is it almost always unforeseen external shocks that causes for budgets to be revised?
23:19Yes. I mean, typically that would be the main reason if we had to make an additional increase.
23:24Coming back to the assumptions that you made in drawing up Budget 27 with the Middle East crisis,
23:30what are you most concerned about with the assumptions underpinning Budget 27?
23:36What assumption are you concerned will not hold? What unforeseen external shock
23:41could possibly happen and then we might have to revise or readjust the position that you're most
23:46concerned about? You know, I still remember when the Ukraine conflict first started and we were
23:52just having an internal discussion and our initial thought that we shouldn't be too badly affected,
23:57you know, we've hardly got any trade in Ukraine. But, you know, the integrated nature of global supply
24:03chains, the fact that, you know, they're so critical in terms of, you know, animal feed and fertilisers,
24:10you know, from somewhere so distant and seemingly unlinked to Malaysia, it eventually, you know,
24:16created, you know, higher food prices. Now, what more a conflict in the Middle East where,
24:22one, we have been historically very reliant on petrol from at least the Homo Strait.
24:29And over and above that, you know, the petrochemical supply chain, you know, it's not just a case of
24:35just the fuel that you put in your car. You know, for example, you know, anecdotally, we hear of,
24:40you know, Farm Fresh producing less of their two-litre plastic bottles.
24:43Yeah. Because it's harder to get plastics. It's hard to find. So they have to get more,
24:46they use more of their paper cartons. You know, that's maybe just, you know, an anecdotal example.
24:50But again, you know, the supply chain of petrochemicals is such that, you know, certainly
24:57for some part of this year, I think companies have been able to absorb the shock through
25:02bringing down their inventories. But with the protracted nature of the conflict,
25:07there is a concern of which sectors, perhaps it's not broad-based, but certainly the concern would be
25:12there'll be specific sectors that would be affected. And I think that's why the government
25:16takes this proactive step of ensuring that Budget 2027 is expansionary so that we support growth in
25:22general. But there's also targeted assistance. So even when the crisis first broke out,
25:27Bangar immediately issued a $5 billion special relief facility to provide loans and liquidity for
25:34SMEs who are affected. And this has been topped up by another $5 billion. So these are some preemptive
25:39elements of Budget 2027 that's there to cater for perhaps those, particularly on the smaller
25:47businesses who might still be affected by this ongoing conflict. Are you optimistic that the coming
25:52year we will be in a better position than this year? So on one hand, we remain cautiously optimistic.
26:01We have a growth forecast of between 4.2% to 5.2%. That's anchored on, we continue to have
26:07strong domestic
26:08consumption. Unemployment remains low. And we are also blessed that with this ongoing AI boom and data
26:17centres that Malaysia are being strong in those sectors, continue to have order books that will probably
26:22bring us through the whole of 2027. So those parts will continue to be a source of strength.
26:29High commodity prices obviously mean there's still strong oil exports, but also sectors like palm oil.
26:34So we have certain sectors that are benefiting from the current global outlook.
26:38And that might be the engine of growth.
26:39So those certainly we expect to continue to hold as a foundation for 2027. However, the risks are
26:48potentially on the downside because, as I mentioned, we do not fully understand how the supply
26:54chain disruptions might affect some industries in Malaysia. Still, even eight months into the crisis.
27:01As I mentioned, because sometimes early on companies have been adapted by bringing down inventories. But
27:08going forward, there may still be some further effects. Even fertilisers, for example, is part of
27:13the microchemical. And there are even potential effects like, you know, we're going through the
27:17haze right now, but there's the Aldino effect that's also expected to affect agricultural production.
27:25So these are, and some of the imported inflation. So when oil prices are very high, eventually just to
27:32import in anything, any goods that come in, there'll be additional costs. So there's also that
27:37slight inflation risks as well. Well, we've run out of time, but thank you so much for being on the
27:43show and giving us an insight into how budget 2027 was drawn up. Thank you for your time.
27:47Thank you so much. That's all the time we have for you on this episode of Consider This.
27:50I'm Melissa Idris, signing off for the evening. Thank you so much for watching. Good night.
28:07Bye for now.
28:08Bye for now.
28:09Bye.
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