Budget 2027 Wage Hikes Raise Cost Concerns

KUALA LUMPUR, Oct 12, 2026: Budget 2027 has been assessed as broadly market-neutral, balancing fiscal consolidation with measures to support household spending, while introducing significant wage increases that could pressure labour-intensive industries.

Under the fifth MADANI Budget, the government targets a narrower fiscal deficit of 3.3% of gross domestic product (GDP) in 2027, down from a revised 3.6% in 2026, keeping it on track to achieve 3.0% by 2028. Development expenditure has been set at RM83 billion, slightly higher than the previous year’s allocation.

The most notable measure is the increase in the minimum wage to RM2,000 from RM1,700 from June 2027, benefiting more than four million workers. A new RM2,500 monthly wage floor for semi-skilled workers and graduates was also introduced, while government-linked companies will raise their living wage benchmark to RM3,400.

Wage Hikes

Analysts said the move would strengthen household purchasing power but increase operating costs for labour-intensive sectors such as plantation and construction.

Consumer spending is expected to receive additional support from higher STR and SARA allocations, lower personal income tax rates and increased tax relief. One-off payments to civil servants and retirees are also set to boost disposable income.

The budget introduced no new broad-based taxes, while tax incentives for businesses, manufacturers and green technology investments were extended or enhanced.

Infrastructure spending remained a key feature, with allocations for road upgrades, rail improvements and power grid enhancements. Energy transition initiatives include RM15 billion in investments by Tenaga Nasional Bhd to strengthen the national grid.

Market strategists identified consumer, property, technology and renewable energy sectors as key beneficiaries, while plantation and construction companies may face earnings pressure from higher labour costs.

Despite the wage-related challenges, analysts maintained a neutral outlook on equities, citing continued fiscal discipline and support for economic growth. APEX

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