Think tank, economist praise gradual approach to targeted subsidies

 

Deputy finance minister Ahmad Maslan said the government is working on a system to provide targeted subsidies for diesel.

PETALING JAYA: The government’s decision to introduce targeted subsidies for diesel has been described as wise by a think tank.

However, Putrajaya lacked the experience to implement such initiatives on a larger scale, said Carmelo Ferlito of the Center for Market Education.

He believed the government’s introduction of targeted subsidies was meant to “determine whether and how targeted subsidies work”.

Ads by Kiosked

Ferlito said a gradual approach in implementing the targeted subsidies would allow the government to identify any kinks.

-ADVERTISEMENT-

Ads by 

“It is an unexplored territory, so it makes sense to start small, fine-tune the system and then move on to a bigger scale when we are sure that the system works,” he told FMT.

Yesterday, deputy finance minister Ahmad Maslan announced that the government was working on a system to provide targeted subsidies for diesel.

Ahmad said Putrajaya expected a proposal for the system to be completed in the second half of the year, but that no date had been set for implementation.

He also said targeted subsidies for petrol would be looked into at a later time as it was a “sensitive” matter.

Yeah Kim Leng of Sunway University also said it made sense to begin with diesel because it already had targeted subsidy mechanisms in place that were effective in reducing the economic and social impact.

Ads by Kiosked

Yeah, who is a member of the body set up to advise Anwar Ibrahim as finance minister, said a gradual approach would pave the way for rationalising petrol subsidies that would be less disruptive to the economy.

He said there were more benefits than drawbacks to introducing targeted subsidies for diesel, especially for transport providers and school buses, as it would reduce the economic and social impact of higher fuel prices.

“If there is slack in the economy, the price pressures will likely be contained,” he said.

“Businesses will bear higher cost pressures, but as long as the price increases are gradual, the extent of cost pass-through to consumers will depend on the prevailing economic and financial conditions.”

Yeah and Ferlito advised against introducing targeted subsidies for petrol and diesel concurrently.

Yeah suggested that subsidies for both fuels be introduced gradually to allow households and businesses to adjust their consumption and production behaviour to changes in price and market conditions in an orderly manner. - FMT