End blanket subsidies that benefit the rich

 

From Rosli Bakar

Recently, it was revealed that the rich are the main beneficiaries of the government’s fuel subsidy programme.

Of the estimated RM4 billion spent by the government on fuel subsidies between January and March, more than half was enjoyed by the Top 20 (T20) group. This is despite them being in the top 20% of the richest people in the country.

Finance minister Tengku Zafrul Aziz has disclosed that for every RM1 spent on fuel subsidy, 53 sen went to the T20, while only 15 sen benefitted the bottom 40% (B40) of Malaysian households in terms of income.

This means that since the government is expected to fork out RM30 billion in fuel subsidy this year, over RM15 billion of it is going to the wealthiest households.

This does not make sense. Government subsidies are meant for the needy. The wealthy do not need subsidies the way the Middle 40 (M40) or the B40 do.

Why should someone who drives a BMW for a family holiday in a posh beach resort enjoy the same fuel subsidy as someone who commutes to work using a beat-up motorcycle, and earning minimum wage?

A few months ago, when our borders reopened, we were dismayed when we discovered that owners of several Singapore-registered vehicles were pumping RON95 at petrol kiosks. This is because RON95 is heavily subsidised by the Malaysian government while RON97 is not.

We felt that these errant Singaporeans were taking advantage of the fuel subsidies meant for Malaysians and that coming from a wealthier country, they should not be enjoying these subsidies.

Shouldn’t the same argument apply to Malaysians? Why should the T20 not only enjoy the fuel subsidy but gain more from it than those from lower income groups? This is counterintuitive. Isn’t subsidy a form of wealth distribution?

If we are able to trim the amount of subsidies enjoyed by the T20, the savings would have gone to helping the B40 and M40 groups to help create a more equitable society.

I understand the finance ministry and the government inherited a legacy subsidy system. We have been accustomed to blanket subsidies. That system may have worked in the past. For years, Malaysians have enjoyed among the cheapest petrol prices in the region.

In Thailand, a litre of RON95 is about RM6. In Singapore, it is roughly RM9.30, while in Malaysia, it’s still fixed at RM2.05.

But any economist will tell you that prolonged subsidies are inefficient and counterproductive. The longer they stay, the harder it is to wean Malaysians off the “subsidy addiction”.

Due to the current geopolitical tension, world oil prices have hit a five-year high. Unfortunately, the additional revenue to the government’s coffers is being “cancelled out” or “neutralised” by petrol subsidies. And then there are also the subsidies on chicken and eggs, as well as electricity tariffs.

The government’s coffers are not a bottomless pit. There is only so much it can give out, especially since colossal sums have been spent over the past two years to tide the country over during the Covid-19 pandemic and the absence of the goods and services tax (GST), which once gave a sizeable additional revenue to the country since 2015.

It is time the government look at alternatives to the current blanket subsidies to ensure a more equitable and targeted distribution of aid.

The current fuel subsidy mechanism is not sustainable in the long run. It is unfair and actually gives lower income groups the short end of the stick.

We must not waste any more time coming up with a more sustainable solution that will contribute to our people and the country’s long-term fiscal resilience. - FMT

Rosli Bakar is a FMT reader.

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