.png)
Budget 2027 Tackles Pay And Prices Together
Malaysia’s cost-of-living debate is usually framed as a problem of wages and prices. Budget 2027 tabled today at Parliament, gives voice to what many of us feel: that the Rakyat feel squeezed because household income growth has not kept pace with price increases. The speech states the problem plainly that employee compensation is only 33.9% of GDP. Its wage measures are the bolder half, but both depend on productivity, enforcement and the fiscal room to keep going.
Raising the floor of wages
The headline measure to raise the wage floor is a rise in the minimum wage from RM1,700 to RM2,000 a month from June 2027. SMEs with sales below RM50 million are exempt from this increase in minimum wage for now to give them room to adjust their business models.
The exemption cuts both ways. It recognises that many small businesses run on thin margins and rising operating costs, a concern the Budget also seeks to address with a one-point cut in SME income tax rates. But the speech itself points out that SMEs employ about 8 million people (i.e. 50% of the workforce). A floor that doesn’t reach a significant share of the workforce risks a two-tier labour market. This could see workers drifting to larger businesses and the talent war in the SME segment will intensify. Perhaps the exemption should have an expiration date with a expected timeline to full coverage.
The government is also planning a minimum wage of RM2,500 a month for semi-skilled jobs and graduates “as a start” and welcomes the commitment by GLICs and GLCs to raise their living wage benchmark to RM3,400 from RM3,100, benefiting an estimated 230,000 workers. The mechanism and timeline of this initiative have yet to be revealed and defining “semi-skilled” and “graduate” roles for wage purposes may be challenging. We expect more clarification on this to be available in the coming months. While the wages initiatives will be welcomed by employees, it remains to be seen if productivity will improve and what measures will be suggested to drive productivity to commensurate the increased minimum wage. Both productivity and wages need to be addressed in tandem for the initiative to be successful.
Formalisation through the tax code
One measure announced deserves a specific mention: Non-SMEs will only be able to claim a tax deduction on salaries if the salaries are paid through a bank account under the channels permitted by the Employment Act 1955. This is intended to address the hiring of undocumented foreign workers who may not be paid through official or documented channels.
The intent behind this measure is good as undocumented payroll practices can undercut compliant employers and weaken wage enforcement. We look forward to details on how this will be implemented and the transitional rules will be introduced when the Finance Bill is tabled. This needs to be implemented carefully to avoid disadvantaging businesses and/or workers unintentionally. Businesses will need to review their existing payroll processes to make sure they comply with the new requirements, otherwise they would be in for a nasty surprise 6 months later when they prepare their tax returns.
Gig workers and retirement
For the 600,000 people who earn a living as e-hailing drivers and p-hailing riders, the Budget offers a minimum income framework to be finalised in early 2027. Pending the finalisation of this framework the government is co-funding a package with GRAB with a sum of RM160 million. This co-funded package is intended to provide support for income increase, vehicle maintenance support and motor insurance and PERKESO support.
The government expects median net income for e-hailing drivers to rise by up to RM227 a month, and for p-hailing riders by up to RM100. A PERKESO matching incentive of 35%, rising to 50% where platforms also contribute, and automatic EPF registration for every citizen at 18, are sensible steps towards social protection that follows the worker rather than the employer.
As this segment of the economy continues to grow in Malaysia and more individuals pursue gigs (part time and full time), these initiatives are timely to ensure they are not left out as this group of workers generally fall outside the traditional sense of employment.
Targeted aid
On the cost-of-living side, the Budget leans on a targeted approach. Total subsidies, aid and incentives for 2027 are expected to exceed RM80 billion, including fuel subsidies expected to stay high at RM40 billion (attributed to the West Asia crisis).
STR SARA rises to RM16 billion from RM15 billion, giving all STR recipients up to RM150 a month, while other adults receive SARA MADANI of RM100 twice. Jualan Rahmah MADANI and Jualan Agro MADANI rise to RM750 million from RM630 million.
Targeting through BUDI95, now at 300 litres a month, and the higher electricity protection level of 800 kWh, up from 600 kWh, is better than blanket subsidies. Cash aid is a reasonable bridge while wages adjust, however, it cannot be expected indefinitely.
The middle-income group and structural costs
For the M40 group the revision of individual relief from RM9,000 to RM12,000 is a long overdue and welcome development. It is worth mentioning that the last time this specific relief was revised was in 2010.
The one-percentage-point reduction in personal tax rate from 19% to 18% and 25% to 24% for the RM70,000 to RM150,000 bands are a nice touch as well. The government says an estimated 5 million taxpayers will benefit from an increase of up to RM1,600 in disposable income from this. We should note that tax reliefs only help those who pay tax. Households below the threshold gain nothing from it, which is why wages and targeted aid must do the work for them.
More durable relief is also being proposed through structural costs. Full stamp duty exemption for first homes up to RM500,000, a new tier for homes up to RM750,000 and SJKP guarantees of up to RM20 billion will help alleviate home ownership costs, especially for the self-employed. The MediAsas plan from January 2027, with a first-year premium subsidy of RM200 per worker for SMEs with fewer than 75 employees, and standard charge categories on private hospital bills target a cost that weighs heavily on families. This is a good initiative that seeks to address the growing concern of rising healthcare costs and shows that the government is listening to the concerns of the Rakyat.
What to watch out for
The Budget 2027 approach to treat wages as the core of the cost-of-living problem is strategic and pragmatic. But to make it work we need the government to deliver on four critical priorities
1. A timetable to narrow the SME exemption
2. A date and clear definitions for the RM2,500 minimum
3. Transition rules for the salary-via-bank condition; and
4. A credible plan to keep subsidy spending within the 3.3 per cent deficit target if oil
prices stay high.
Higher pay built on higher productivity is a central part of a lasting solution to the costof-living problem. This Budget points in that direction. Delivery will decide whether it gets there.
Mark Chan, Group Tax Leader Folks DFK Group
The views expressed are the writer’s own. The information in this commentary is based on the Prime Minister’s speech delivered in Parliament on 9 October 2026 and tax related initiatives are subject to change when the Finance Bill is tabled.