Redirect subsidy reform savings to strengthen federal aid initiatives, says expert

Economist Goh Lim Thye points out that blanket subsidies have proven to be structurally regressive given that they benefit the rich more than the needy.

The subsidy for RON95 benefits the richest Malaysians disproportionately.

PETALING JAYA:

 An economist and a consumer group have urged the government to ensure that savings from fuel subsidy rationalisation be used to strengthen federal aid initiatives such as Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (Sara).

Goh Lim Thye of Universiti Malaya and the Federation of Malaysian Consumers Associations (Fomca) told FMT such reforms are essential and timely given that blanket subsidies tend to benefit high-income households disproportionately.

Goh pointed to data shared by Prime Minister Anwar Ibrahim showing that foreign nationals and the richest 15% of Malaysian consumers enjoyed as much as 40%, or RM8 billion, of the RON95 petrol subsidy last year.

“Blanket fuel subsidies are fiscally draining and structurally regressive, especially when higher-income households, who drive more and own multiple vehicles, end up receiving a larger share of government support,” he said.

“To ensure long-term sustainability, Malaysia must move away from untargeted, consumption-based subsidies toward a more needs-based, data-driven social support system,” he added.

Finance minister II Amir Hamzah Azizan previously said the government is expected to save between RM7.2 billion and RM7.5 billion annually by introducing targeted diesel subsidies, almost double the initial forecast of RM4 billion.

The government rolled out the targeted subsidy for diesel in mid-2024, while the subsidy for RON95 is likely to be rationalised by mid-2025.

Goh said that reforming the subsidy system could help preserve public funds for key aid initiatives, including child nutrition, elderly care, and targeted cash assistance such as STR and Sara.

“Savings from such reforms, potentially in the billions, could also be redirected to enhance the depth and coverage of existing safety nets, support rural development, or improve critical services like healthcare and education,” he added.

Fomca CEO T Saravanan said subsidy schemes should be implemented with a “clear, transparent, and fair” targeting mechanism that includes robust monitoring and enforcement to prevent profiteering.

“Subsidy reform is critical for long-term fiscal and social sustainability, but it should be gradual, inclusive, and accompanied by effective communication and engagement with consumers to prevent shocks and negative public sentiment,” he said.

Saravanan added that any move to redirect savings must lead to broader coverage and increased payouts in aid programmes to ease cost-of-living pressures.

For Goh, the fuel subsidy rationalisation move is ultimately a test of the government’s readiness to make difficult choices.

“Accurate targeting (also) depends heavily on reliable and timely socioeconomic data. (Therefore) platforms like the central database hub (Padu) must be updated continuously and verified to avoid exclusion errors,” he said.

“Without that, even well-intentioned redistribution could fail to benefit those most in need, undermining public trust and policy,” Goh added. - FMT