Time for a more sustainable fuel subsidy policy

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The current fuel subsidy mechanism is unfair and actually gives the lower income groups the raw end of the deal.

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 subsidy between January and March, more than half of it was enjoyed by the T20 group. This is despite them being the top 20 percent richest people in the country.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz has disclosed that for every RM1 spent on fuel subsidy, 53 sen went to the T20, while only 15 cents benefitted the B40, or the bottom 40 percent of Malaysian households in terms of incomes.

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 in the country.

This does not make sense! Government subsidies are meant for the needy. The wealthy do not need subsidies the way the M40 or the B40 do. Why should someone who drives a BMW to 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?

Azhar Mahfof/The Star

A few months ago, when our borders re-opened, 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, Singaporeans should not be enjoying these subsidies.

Shouldn’t the same argument apply among Malaysians? Why should the T20 not only enjoy the fuel subsidy, but gain more from it than those from the lower income? This is counterintuitive. Isn’t subsidy a form of wealth distribution? If we are able to trim the number  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 Ministry of Finance and the Government inherited a legacy subsidy system. We have been so accustomed to blanket subsidies. That system may have worked in the past. For years, Malaysians enjoy among the cheapest petrol prices in the region.

In Thailand, a litre of RON95 is around 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 it stays, 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 recently. 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 subsidies the Government 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 GST – which once gave a sizable additional revenue to the country – was repealed in 2018.

It is time the Government looks 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 the lower income groups the raw end of the deal. We must not waste any more time to come up with a more sustainable solution that will contribute to our people and the country’s long-term fiscal resilience.

The views expressed here are strictly those of The TrueNet reader Rosli Bakar from Muar.