PETALING JAYA: The decision to increase civil servants’ salaries over two phases will allow the government to have more “fiscal space” in its budget, says Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid.

He said the introduction of new taxes and subsidy rationalisation will expand the government coffer.

“This will be redirected towards raising civil servants’ salaries, among others,” he added.

Datuk Seri Anwar Ibrahim announced a 15% pay raise for civil servants under the management and professional category and a 7% salary raise for civil servants in the upper management category.

The Prime Minister said civil servants will receive the first increase on Dec 1 and the second on Jan 1, 2026.

Mohd Afzanizam said the move to increase civil servant’s salaries is important for the nation’s economic development.

Given the last time civil servants had their salary revised was 12 years ago, he said, the announcement is most reasonable.

“What matters is how this adjustment will translate into better policy making and implementation, which ultimately can promote innovation, creativity and productivity.

“They (civil servants) are the ones who facilitate, enable and support the private sector’s contribution to the economy,” he added.

With the gross domestic product growing at 5.9% in the second quarter of this year, and full-year growth likely to be at the higher end of the projected 4% to 5% range, government tax and non-tax revenues are also expected to rise simultaneously, said Sunway University professor of economics Yeah Kim Leng.

He said this increase in revenue will allow the government to fund the civil service salary hike.

“In addition, social spending can be increased with savings from the shift from blanket to targeted subsidies without reversing the declining trend in the fiscal deficits,” said Prof Yeah.Putra Business School economic analyst Assoc Prof Dr Ahmed Razman Abdul Latiff meanwhile said the government should also look into implementing a luxury tax to increase the country’s income.

“Measures to absorb the cost should consist of a variety of strategies such as reducing leakages, wastage and corruption across government ministries and agencies.

“The privatisation of some government agencies will also reduce costs to the government,” he added.

https://www.thestar.com.my/news/nation/2024/08/17/two-phase-hike-gives-time-for-govt-to-absorb-impact