PETALING JAYA: Budget 2026 should mark a decisive shift from short-term subsidies to long-term reforms that strengthen productivity and rebuild Malaysia’s middle class, said Universiti Pertahanan Nasional Malaysia economic expert and Malaysian Institute of Economic Research senior fellow Dr Nur Surraya Mohd Saudi.
She said Malaysia’s middle-income group – households earning between RM5,000 and RM11,000 monthly – is increasingly squeezed by stagnant real wages, higher living costs and rising household debt that erode purchasing power and savings.
“The squeeze on Malaysia’s middle class stems from rising living costs, heavy household debt and stagnant wage growth – a perfect storm that eats into disposable incomes.
“Escalating food, housing and transport costs, compounded by fuel and electricity subsidy adjustments, continue to erode purchasing power. Meanwhile, high household leverage leaves M40 families vulnerable to rate hikes and income shocks,” she told theSun.
Nur Surraya said although Malaysia’s economy has grown steadily, many middle-income households feel left behind because wages have not kept pace with productivity and inflation. “This mismatch reflects deeper weaknesses in job quality and value creation that cannot be solved through temporary handouts.”
She noted that redirected savings from subsidy rationalisation must go towards wage support, skills upgrading and social assistance to cushion the impact of rising costs.
“Budget 2026 will advance targeted subsidy reforms and more efficient spending. While rationalisation may lift costs for some M40 groups, redirected savings towards wage support, skills upgrading and social assistance can offset the impact if implementation is precise and transparent.”
Nur Surraya further said Malaysia’s middle class plays a vital stabilising role by sustaining consumption, supporting businesses and anchoring tax revenue.
Policymakers, she said, must therefore treat middle-class resilience as a key component of fiscal sustainability.
“The government must pair fiscal discipline with protection measures – targeted cash transfers, tax relief for dependants and housing incentives – while investing in productivity-driven wage growth rather than temporary subsidies.”
To expand and strengthen Malaysia’s middle class, Nur Surraya said the economy needs sustained investment in R&D, high-value manufacturing, digital and green industries, and closer SME integration into export-driven value chains that generate better-paying jobs.
“Lifelong learning and large-scale upskilling are essential to help workers move from low-productivity to higher-income sectors.”
She also urged the government to strengthen household savings and financial resilience through targeted incentives and affordable credit, supported by a disciplined yet flexible fiscal framework.
“Financial resilience through savings incentives and affordable credit must complement a disciplined yet responsive fiscal framework that channels subsidy savings into human capital and social safety nets.
“Together, these reforms directly tackle the roots of the middle-income trap and squeeze, driving Malaysia towards a stronger, more resilient middle class.”
However, Nur Surraya cautioned that success will depend on strong governance and public trust.
“Fiscal consolidation will only gain traction if Malaysians can see that savings are genuinely redirected towards social mobility and productivity growth,” she said.
