How big is Budget 2026?

Budget 2026’s allocation from Putrajaya is slightly smaller than the one announced last year, as the Anwar Ibrahim administration reins in its spending and faces pressure from global oil prices.

It is also the first contraction since Budget 2020.

Read on for a deep dive on how Putrajaya has managed its funds this year, and how it’ll be spending in 2026.

Budget 2025 shrank

The reason that the government can spend less next year than it originally announced for 2025 is that this year’s budget also shrank.

The government’s revised expenditure for 2025 is RM412.1 billion - a reduction of RM8.9 billion.

The Anwar administration said it was able to save on spending due to the optimisation of emoluments and lower debt service charges.

Development spending was also RM6 billion less at RM80 billion.

If the government can stick to its revised budget by year's end, it would be the first time in at least 37 years that the government has spent less than what it initially budgeted.

Parliament’s online archive, stretching back more than three decades, shows that the government has been overspending since at least 1988.

The previous government was on track to stay within budget in 2021, but ultimately ended up spending RM12 billion more.

From this new endpoint of RM412.1 billion in 2025, the government is planning to spend an additional RM7.1 billion next year, mostly to account for the annual increase in emolument spending and retirement charges.

Meanwhile, spending on development will be at RM81 billion, with a focus on improving roads and flood mitigation, among other things.

Additionally, Anwar announced in his budget speech that RM50.8 billion will be pumped in by GLICs and statutory bodies, as well as public-private investments, bringing Budget 2026 up to RM470 billion.

With spending seemingly dialled in, the government plans to reduce the fiscal deficit to 3.5 percent of gross domestic product next year.

But it's not all good news for Anwar.

Revenue for 2025 missed target

This year marks the end of a three-year streak in which the government generated more revenue than expected.

Revised estimates show the government will make RM334.1 billion this year, RM5.6 billion less than projected.

The decrease was partly due to lower corporate income tax collection than initially anticipated, though it is still higher than in 2024.

Another factor was the lower petroleum income tax due to declining crude oil prices.

Petronas takes a hit

The crashing oil price is expected to hit Petronas hard.

In 2026, the oil and gas firm’s annual dividend to the government will be slashed by RM12 billion.

Subsidies and aid

Lower oil prices, however, may bode well for the government in terms of subsidy spending.

With Budi95 in place, lower oil prices mean that the government will have to spend less to subsidise petrol for Malaysians.

The targeted RON95 subsidy mechanism was the last piece in the government’s plan to slash spending on subsidies.

While the government exceeded its subsidy and social aid budget target this year by almost RM4.5 billion, next year, it aims to spend just RM49 billion - inching closer to pre-pandemic spending.

Where is the money coming from?

Despite lower petroleum revenue and dividends from Petronas, the government is aiming for higher overall revenue collection next year, at RM343.1 billion.

The decline in fossil fuel income is being shored up by expectations of higher corporate income tax, as well as sales and services tax (SST) collection, among others.

What’s next?

While the government is cutting down dependency on petroleum, it is still expected to contribute around RM129 billion in revenue from 2026 to 2028.

This would account for 1.9 percent of the country’s GDP.

The government is also aiming to lower the fiscal deficit to 3.2 percent of the GDP.

Allocation for ministries