The federal government has allocated a total of RM419.2 billion under the 2026 budget, a RM2 billion decrease from the RM421 billion allocated for 2025.
This is only the second time that the budget has exceeded RM400 billion.
Operational expenditure accounts for RM338.2 billion, or about 80.7% of the budget, while RM81 billion has been allocated for development expenditure.
The money allocated for operational expenditure is 1.8% higher than the revised 2025 budget, with emoluments continuing to make up the largest component at RM109.4 billion.
This is mainly due to the second phase of implementation for the public service remuneration system in January, which will see a basic salary hike of 7% for civil servants in Grade 15 and below.
Subsidy spending down 14.1% thanks to targeted measures
In its 2026 Economic Outlook report, the Treasury said spending on subsidies and social assistance was expected to decline by 14.1% to RM49 billion next year, thanks in part to efforts to move away from blanket subsidies.
“This decline is mainly due to lower global commodity prices and subsidy rationalisation efforts, including the implementation of the BUDI95 programme,” it said.
About 56% of the RM49 billion will go to social aid and incentives to support vulnerable groups, especially the Sumbangan Asas Rahmah and Sumbangan Tunai Rahmah initiatives.
Retirement charges and debt service charges are also expected to increase, with the former set to rise by 6.8% to RM42.8 billion. Some RM33.7 billion will be spent on pension payments, and the remainder on gratuity payments and cash in lieu of leave awards.
Meanwhile, RM58.3 billion has been set aside for debt service charges, of which 98.8% will be for domestic loans and the rest for offshore loans.
“An effective and prudent debt management strategy, coupled with active investor engagements, has contributed to optimisation of the government’s borrowing costs,” the Treasury said.
Nearly half of development funds directed towards economy
The RM81 billion for development expenditure will cover 2,300 programmes and projects under the 13th Malaysia Plan, with the economic sector accounting for the largest share at RM36.8 billion, or 45.4%.
Of this, RM17.5 billion will be directed to the transport subsector, with projects lined up including Malaysia-Indonesia border connections, an air traffic control centre in Kota Kinabalu, and two interchanges on the North-South Expressway in Negeri Sembilan and Perak.
The Treasury has set aside RM3.8 billion for the environment subsector, specifically for nature preservation and climate change initiatives, including flood mitigation projects in Kedah, Terengganu, Johor and Negeri Sembilan.
The government will also embark on a river conservation project with the goal of reducing flood risks nationwide, and develop a national flood forecast and warning centre in Kuala Lumpur.
In the social sector, RM14.5 billion will go towards enhancing facilities and ICT infrastructure under the education subsector, with the goal of narrowing the rural-urban gap and modernising learning.
Meanwhile, some RM7 billion has been earmarked for health projects, including a northern region cancer centre in Kedah and the construction of new government clinics in Sabah, Sarawak and Penang.
The security sector will get RM11.7 billion, with RM8 billion going to defence and the rest channelled towards internal security.
“A substantial share of this allocation supports the acquisition of defence and security assets,” said the finance ministry.
