Give fuel subsidies only to B20 group, says economist

PETALING JAYA: The government should limit spending on fuel subsidies to the bottom 20 (B20) group instead of expanding the subsidy programme to middle-income (M40) households, according to an economist.

The economist, Carmelo Ferlito, said questions would arise about how the subsidy programme would be financed. “This is the first question we should ask every time an outflow of money is promised, to support demand and purchasing power.”

Ferlito, a senior fellow at the Institute for Democracy and Economic Affairs, said the provision of fuel subsidies might encourage people to develop a spending habit, which will boost related expenditure such as on motor vehicles or on tolls.

Government money spent on subsidies would take away funds for public transport, he said.

The government’s petrol subsidy programme was to have begun on Jan 1 but has been deferred. Yesterday, the domestic trade ministry said people in the M40 middle-income group could register for the subsidy programme in the second quarter of 2020.

Ferlio said a bigger problem would arise when subsidies are suspended due to a lack of resources.

“People will then have to review their consumption habit, affecting the demand for petrol and the related industries. The final outcome can be worse than the starting point,” he said.

He suggested that fuel subsidies be limited to the B20 group in the short-term, while more structural solutions, such as improving public transport and intercity connectivity, be considered in the longer-term.

Another economist, Yeah Kim Leng, said the effectiveness of the subsidy programme for the M40 would depend on the amount and to what extent it helped to lower spending on fuel relative to the increase in the cost of living.

Yeah, who is with Sunway University Business School said other measures such as skills training, income-generating opportunities for the M40 households and other development initiatives would not have an immediate effect to bring down living costs.

Yeah said there were people in the middle income group who used public transport or carpools and a transport subsidy for all M40 households would be more equitable and would encourage more M40 individuals to use public transport. - FMT