By Datuk Prof Dr Mohd Faiz Abdullah
KUALA LUMPUR, Oct 12 (Bernama) -- Budgets are annual supply bills proposed by the government to fund expenditure for the coming year. But more than that, they are a signal of intent, telling us what a government values, the priorities it sets, and the direction the nation is heading.
From a philosophical standpoint, budgets ideally embody the social contract between the people and the state, reflecting collective values and priorities in resource distribution. More than mere financial blueprints, they are moral statements about what a society deems important.
Taxation
Nevertheless, it is futile to get away from the financial considerations, for at the core, budgets are euphemisms for taxation, as they represent how governments collect and allocate resources to meet those societal needs.
There’s no free lunch, for responsibilities cut both ways – citizens must pay up and the state must provide public goods. Not only is efficiency of public spending brought into question but also the moral implications of the distribution of tax burdens. Is it fair, equitable and just?
In this regard, Budget 2026 unveiled on Friday by Prime Minister Datuk Seri Anwar Ibrahim, builds upon the twin goals of the MADANI Economy Framework: to raise the floor by safeguarding the wellbeing of the most vulnerable, while raising the ceiling by propelling the nation towards higher productivity and competitiveness. Doing so, however, requires navigating a demanding three-way balancing act between fiscal consolidation, social inclusion, and economic transformation.
The way this budget approaches that balance, hence, towards realising the higher objectives, is first by reaffirming the commitment to raising the floor. It redirects fiscal savings from blanket subsidy reforms into areas that expand opportunity and build regional resilience.
This means investing in families, education, and livelihoods, particularly for communities still on the margins of development. Cash assistance and near-cash supports, such as the flagship STR and SARA programmes, have been expanded, complemented by social insurance, retirement savings top-ups, and new protections for the self-employed.
Reinforcing these social protection measures are opportunity-creating initiatives like Ikhtiar MADANI, which expands livelihood opportunities for small producers and micro-entrepreneurs, and mobile service units that bring government, financial, and health services directly to rural interiors.
These choices trace a deliberate policy shift: one that moves away from a grow-then-redistribute model towards one that treats wellbeing and inclusion as foundational to progress itself. To be equitable is to work towards reducing the gap between the rich and the poor.
Already, some of these results are visible. Recent figures show that Malaysia has nearly eradicated hardcore poverty, with Budget 2026 outlining a clear commitment to further progress in the coming year. Certainly, much more still needs to be done.
Further, amidst a global backdrop of rapid geopolitical shifts, technological disruption, and intensifying climate pressures, inclusion alone is not enough. Malaysia needs to also raise its ceiling.
Budget 2026 builds on this aspiration. Strategic investments in semiconductors, artificial intelligence, and automation are paired with long-term bets on the energy transition. Notably, the National Semiconductor Strategy receives a dedicated allocation, signaling not just industrial ambition but an intent to cultivate home-grown technological champions.
Likewise, the ecosystem around research, innovation, and startups is being strengthened to deepen Malaysia’s position along high-value segments of global supply chains.
Defence and security
On the subject of defence and security, a good starting point is ‘Si vis pacem, para bellum’ (If you want peace, prepare for war), a phrase that I use unashamedly in my talks at the National Centre of Defence Studies.
I am no war monger, but a firm advocate of increased defence spending especially for middle-power countries like Malaysia. As we navigate complex regional dynamics, including geopolitical tensions and transnational threats, a robust defence framework is paramount.
It is imperative that we take a proactive approach to national security, one that not only develops military capabilities but also invests in diplomatic and economic strategies to foster regional cooperation and peace.
This is where we see the intersection of defence spending with broader socio-economic objectives, to view national security not merely as military preparedness but as a holistic approach that encompasses social cohesion and economic development. It’s about safeguarding national sovereignty while nurturing a peaceful and prosperous society.
In this regard, Budget 2026 repositions national security around readiness, resilience, and regional stability. With one of the largest allocations in recent years, the focus goes beyond expanding the arsenal, but on strengthening Malaysia’s capacity to respond to complex, multi-domain threats.
The defence and home ministries’ allocations reflect a shift toward modernisation and coordination: upgrading air and maritime surveillance, improving border and coastal defences, and ensuring interoperability across services.
Crucially, the approach ties security to national industry and fiscal prudence: new procurement and maintenance cycles aim to deepen domestic supply-chain participation, reducing dependency on foreign vendors while building long-term local capabilities. In parallel, investments in the Malaysian Maritime Enforcement Agency and the Eastern Sabah Security Zone enhance enforcement and early response in critical maritime domains.
Together, these measures signal that Malaysia’s security policy is evolving beyond asset acquisition to one of sustained readiness – balancing defence capability with institutional resilience and industrial self-reliance.
Although not quite near para bellum yet in state of preparedness, it does manifest the aspiration to take our defence to the next level.
Education
On the subject of peace, we may segue to education as the famous saying of Confucius reminds us: ‘Education breeds confidence. Confidence breeds hope. Hope breeds peace.’ This underscores the transformative power of education as a critical component of wisdom and peace.
Education is critically important for the advancement of any nation, what more a middle-power country like Malaysia, serving as a catalyst for economic growth, social development, and enhanced global competitiveness.
In this light, Budget 2026 is a testament to education remaining the centrepiece of Malaysia’s long-term strategy to raise both the floor and the ceiling. In giving the Education Ministry its largest-ever share of spending, it signals that national competitiveness depends as much on upgrading minds as it does on upgrading industries.
The focus is twofold: expanding access and improving quality. On one hand, the priority is ensuring that every child, regardless of region or income, can access education from school through to higher learning.
Spending focuses on building new schools in underserved areas and improving inclusivity through better facilities and support for students with disabilities.
About 5,800 underprivileged students at public universities will also receive free education under the PTPTN, with RM120 million allocated annually. On the other hand, spending aims to raise standards through better teacher training, stronger digital infrastructure, and closer alignment between learning and labour market needs.
Health
In health, Budget 2026 signals a commitment towards renewal of the public healthcare system. With the Ministry of Health receiving amongst the highest allocations, spending will work to confront legacy constraints head-on, from hospital congestion and dilapidated infrastructure to medical inflation and workforce precarity.
Older hospitals and clinics will be upgraded, digital health infrastructure extended into rural clinics, and specialist services decentralised to ease pressure on tertiary centres.
At the same time, the budget promises stronger protection for healthcare workers: permanent appointments for many contract doctors and nurses, (still not enough of course) and increased on-call allowances.
Reforms in payment models micro-insurance expansion, and public–private partnerships in essential medicine production point to efforts at deep systemic change, not just patchwork solutions.
Jacking up the ceiling chargeable fee from RM35 to RM80 for GPs seems good but apparently not good enough because of the failure to raise the minimum RM10 consultation fee. Why? Because, according to the MMA, such a low floor price continues to undercut private clinics and doesn’t do justice to the true value of GPs in delivering frontline care.
The expansion of the Malaysia Sihat agenda through higher excise duties on tobacco and alcohol to fund prevention of lung, diabetes, and heart diseases reflects a shift towards using fiscal tools to internalise public health costs.
But would smokers be really deterred with the hike of two sen per stick? How this figure is arrived at remains a mystery considering that the last time cigarette tax was raised – by 12 sen – was more than a decade ago.
Carbon tax
Equally important is policy continuity. The carbon tax, set to take effect next year, embeds climate responsibility within the fiscal framework. When moral suasion fails, one needs to crack the whip.
Indeed, we need not follow every measure that Singapore adopts, like in sending people to the gallows for drug trafficking – regardless of pleas for mercy – but for taking climate change seriously, they enforced the carbon tax much earlier, enabling it to claim leadership in sustainability.
We need to get the messaging right: carbon tax is about environmental accountability and the importance of timely climate action. It pays to incentivise businesses to decrease emissions and invest in green technology. It’s a package deal: future fiscal incentives must be performance-based, productivity-focused, and aligned with long-term competitiveness goals.
Deficit reduction and fiscal consolidation
But in the end, perhaps the most noteworthy element of Budget 2026 is its balance. It recognises that inclusion without transformation risks stagnation, and transformation without inclusion risks widening disparities, and justice falls through the cracks.
Yet there is a third lever that underpins both: fiscal and institutional governance. The credible way to do both, expand opportunity and invest for the future, is with a firm fiscal hand. Here, too, the Budget manages to record progress on fiscal consolidation.
As an integral drive towards good governance, the fiscal deficit continues its downward glide even while development spending remains robust. Savings from subsidy rationalisation are being reinvested into people and productivity rather than lost to inefficiency. Revenue administration is being modernised, and procurement processes strengthened to ensure we can get more bang for the buck!
But let’s pause to deal with the criticism that Anwar is overly obsessed with reducing fiscal deficits. First off, the purported ‘obsession’ stems from a multifactorial rationale.
Debt sustainability features prominently considering that the current MADANI administration inherited a national debt of RM1.5 trillion from previous administrations. This humongous figure underscores the challenges the administration faces in managing fiscal responsibility while addressing economic growth, social programs, and national development priorities.
Then, there’s the laundry list of inflation control, preserving investor confidence, credit rating, and future generational equity. Fiscal discipline aims to safeguard room for the future, to keep borrowing costs low, and create room to act when the next crisis comes. Fiscal space, after all, is policy space: the ability of a government to respond to shocks, cushion downturns, and deliver public goods without jeopardising the generations to come.
On the other hand, it’s true that too much austerity risks crowding out the very investments that drive growth, resilience, and social progress. Austerity measures that accompany deficit reduction efforts can disproportionately affect lower-income groups, exacerbating inequality and social unrest.
Further, as we have learnt from the lessons of the 1997 Asian financial crisis, sometimes we need more than the air that we breathe, to take the bull by the horns and slam dunk on spending – the good old Keynesian counter-cyclical boogie.
But are we in times of such economic downturn, that would warrant extraordinary measures to stimulate demand, support job creation, and foster recovery, to justify increase in fiscal deficit? At the end of the day, it’s about balancing fiscal responsibility with the need for growth and social welfare.
Budget 2026’s approach to deficit reduction reflects this balanced logic, one that focuses on the increasing quality of spending rather than contraction, and equally on strengthening fiscal institutions so that discipline becomes a platform for sustained, people-centred growth, not a constraint on it.
This has to be the North Star for crafting effective and sustainable economic policies.
Conclusion
This threefold balance, between inclusion, transformation, and governance, is demonstrative of a maturing policy philosophy. It suggests a government willing to make trade-offs, to pursue both empathy and efficiency, and beyond rhetoric, to hold itself accountable to outcomes.
Of course, as with any policy action, trade-offs are inevitable, but what matters is intent and implementation. Budget 2026 restores a sense of direction and coherence to the national narrative, one that avoids the zero-sum trap of forcing priorities to compete with each other – and asks how they can instead reinforce each other.
Sin taxes have never endeared those who prefer the epicurean lifestyle. But while I’m still not sure what toll on my pocket the RM40/kg for cigars will inflict, I support the move to reduce access to alcoholic beverages and promote a healthier lifestyle. Let’s drink to the successful passage of Budget 2026.
* Prof Dr Mohd Faiz Abdullah is the chairman of the Institute of Strategic & International Studies (ISIS) Malaysia
-- BERNAMA
BERNAMA provides up-to-date authentic and comprehensive news and information which are disseminated via BERNAMA Wires; www.bernama.com; BERNAMA TV on Astro 502, unifi TV 631 and MYTV 121 channels and BERNAMA Radio on FM93.9 (Klang Valley), FM107.5 (Johor Bahru), FM107.9 (Kota Kinabalu) and FM100.9 (Kuching) frequencies.
Follow us on social media :
Facebook : @bernamaofficial, @bernamatv, @bernamaradio
Twitter : @bernama.com, @BernamaTV, @bernamaradio
Instagram : @bernamaofficial, @bernamatvofficial, @bernamaradioofficial
TikTok : @bernamaofficial
