The price of cheap petrol is cuts in healthcare

 Malaysia’s addiction to cheap petrol puts essential spending on health, education and welfare at risk, and difficult decisions on subsidy rationalisation are now unavoidable.

The fiscal realities of Malaysia’s subsidy regime have reached a critical point. What was once a manageable RM700 million monthly bill for fuel subsidies has exploded tenfold to a staggering RM7 billion per month.

At this rate, the subsidy bill for the remainder of the year will hit RM58.4 billion, dwarfing the initial budget allocation of RM15 billion.

In the face of this explosion, the Treasury has issued a directive to find RM10 billion in “cost savings” across the board. While the directive was vague on specifics, the reality of departmental spending is cold and unforgiving.

When you need to save billions quickly, you cannot look at the small agencies, you have to go where the money is.

Unfortunately, the biggest budget lines for civil service pay and pensions and debt servicing which take more than 50% of the total budget cannot be cut so the 2026 Budget allocations for health and higher education are the main targets.

Specifically, a RM3.06 billion or 6.7% cut from the ministry of health and a RM2.39 billion or 12.8% cut from higher education.

In higher education, the cuts are perhaps sustainable. Public universities sit on significant reserves and have the resources to cover these shortfalls. It is seen as “less essential” in the immediate term and the universities can afford to tighten their belts.

However, the cuts to the ministry of health are a different matter entirely.

To find RM3 billion, the government will likely freeze development spending. Maintenance will be deferred and the construction of new hospitals and clinics will be postponed.

Elective surgeries and non-essential treatments will move further down the waiting list.

To be brutally honest, cutting health spending means putting money ahead of people. It means vulnerable patients are put at risk. In the simplest, harshest terms, people may die so that Malaysians can enjoy cheap petrol.

This is the trade-off the government is currently making to maintain a political commitment to keep RON95 below RM2 per litre to prevent hostility from the rakyat.

While there have been attempts at subsidy rationalisation by floating prices for foreigners and trimming quotas, the impact has been negligible. Most people are unaffected, and crucially, behaviour has not changed. Petrol consumption remains high because the price signal is broken.

If the government does not control this spending, it will breach its budget, forcing higher taxes or increased borrowing. This would damage Malaysia’s reputation for sound fiscal management and push up the risk premium on Malaysian Government Securities (MGS).

There are alternatives but they require political courage. The current quota of 200 litres of RON95 at RM1.99 is far too generous. The quota should be slashed to 100 litres, with tiered pricing or full market rates applied above that.

Since the lower-income groups rarely exceed 100 litres, this move would primarily hit the wealthy.

Furthermore, the government should mandate work-from-home (WFH) in the private sector. This simple administrative move could cut petrol demand by 25% to 30% almost overnight without costing a sen.

The narrative needs to shift. The government must tell the public: “To protect your health and your children’s education, the rich must pay their fair share at the pump.”

Finally, we must ask a burning question: why has the subsidy bill risen tenfold when global oil prices have not?

A jump from RM700 million to RM7 billion suggests more than just market fluctuations; it suggests systemic leakages or inefficiencies that need urgent investigation.

We cannot continue to sacrifice the long-term health of our citizens for the short-term comfort of a subsidised tank of fuel. The price of cheap petrol is simply too high. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.