Prices Of RON95, Sugar, Rice To Go Up In ‘Subsidy Rationalisation’? Govt Resists Miti Agency’s Proposal To Remove Subsidies

Implementation will depend on Putrajaya’s political will as move could be highly unpopular, says one source

(The Vibes) – If the Malaysia Productivity Corporation (MPC) has its way, Malaysians could very soon be spending considerably more on several key essential items due to the removal of subsidies.

It is understood that discussions are currently at an advanced stage, with the agency under the International Trade and Industry Ministry (Miti) appearing intent on pushing for what it is termed as a “rationalisation of subsidy”.

Among the subsidies that are being proposed for rationalisation include RON95 fuel as well as agricultural products like sugar and rice.

The proposal has been mooted since the days of Datuk Seri Najib Razak’s prime ministership, but support for it has intensified on the back of a wrenching Covid-19 economic downturn being further aggravated by the Russian invasion of Ukraine, which has driven oil and gas prices up.

The Vibes was informed that the push by the MPC is motivated by the understanding that the billions of ringgit spent by the government on subsidies each year are stifling the country’s productivity and competitiveness.

Various global competitiveness indexes constantly rank Malaysia at an average spot, with one of the reasons cited being the country’s generosity in offering subsidies.

The implementation of the rationalisation of subsidies will now depend on approval from Prime Minister Datuk Seri Ismail Sabri Yaakob and his cabinet.

However, sources close to the matter said the proposal is facing resistance from the majority of ministries and government agencies, which are instead more concerned for the people’s welfare.

A highly placed source, who spoke on strict conditions of anonymity, says the Malaysia Social Protection Council (MySPC), chaired by the Prime Minister Datuk Seri Ismail Sabri Yaakob and comprising 15 ministries and other key post-holders, has called the MPC for a meeting to present its suggestions. – Bernama pic, March 26, 2022

While subsidies are typically offered and paid directly to businesses, the added cost due to their removal will eventually be passed on to consumers.

Meeting with MySPC may determine outcome

A highly placed source, who spoke on strict conditions of anonymity, said the Malaysia Social Protection Council (MySPC), chaired by the prime minister and comprising 15 ministries and other key post-holders, has called the MPC for a meeting to present its suggestions.

“I don’t have an exact date, but a paper has been prepared by the MPC and the director-general Datuk Abdul Latif Abu Seman is scheduled to make the presentation to MySPC. It will be very soon,” he said.

“The fact that the council headed by the prime minister is even calling on the MPC to present its views shows the government is very concerned that the implementation of the subsidy rationalisation may affect the rakyat, especially at a time when many are already reeling financially.”

At the moment, the source said no time frame has been given yet on the implementation of the subsidy rationalisation.

“We are still finalising which candidates of subsidy will be removed. If we determine that removing a particular subsidy can help improve our competitiveness, then it will be seriously considered.”

However, the insider said this will also depend on approval from MySPC, which may reject the proposal if it deems the removal of a subsidy will have grave impact on users.

“In the eyes of the MPC, agricultural subsidies are at the top of our list for rationalisation. This will include flour, sugar and rice.

“Having said that, we know that the subsidy on the oil and gas sector is the largest in the country. So, this certainly will have to be considered too, simply because of the size.”

An insider says the MPC has agricultural subsidies – including flour, sugar and rice – at the top of its list for rationalisation. – Bernama pic, March 26, 2022

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz had said earlier this month that if the oil price remains at US$100 a barrel, the government could look at paying subsidies of up to RM28 billion this year.

Active discussions ongoing for months

Another source said the proposed rationalisation of subsidies is among the top agenda of the MPC, which is currently actively engaged in the matter and was for the best part of the last few months.

Besides the MPC, it is understood that among other government agencies rumoured to be proposing and supporting the subsidy removal are Miti’s Malaysian Investment Development Authority (Mida) and the Economic Planning Unit headed by Datuk Seri Mustapa Mohamed.

Commenting further, the source said the MPC’s discussions are solely focused on subsidies, which he claimed are often confused with government aid.

“Cash assistance like the Bantuan Keluarga Malaysia, for example, is not being considered as this is not part of the subsidy. That will be the sole prerogative of the government.”

He added that the controversial implementation of the subsidy rationalisation will rely on the political will of those in power – approving it could be regarded as a highly unpopular move among the masses.

Asked why the government had introduced subsidies if they are known to affect productivity, the source said: “Perhaps at the earlier stages, we thought we have enough money.”

“But they didn’t realise how much it is affecting our competitiveness. But now, they realise they need to do something to bring us back on par with other more competitive nations.”