Targeted subsidy is the way to go

THE government’s announcement of a plan to implement targeted fuel subsidies for those in the B40 group is lauded. We urge the government to speed up the implementation because, contrary to what some consumers may think, blanket subsidies come from taxpayers. It is therefore not advantageous to Malaysia or the people.

In fact, the war in Ukraine is a wake-up call for Malaysia. It resulted in the Brent crude oil index exceeding US$130 per barrel in early March, the highest in 14 years, and the price has stayed well above US$80 per barrel till now.

Currently, the government is subsidising RON95 petrol, diesel, and liquefied petroleum gas (LPG). According to the Finance Ministry, the subsidy for fuel alone is going to cost as much as Rm28bil in 2022.

The price of Malaysia’s subsidised petrol (RON 95) makes it the most affordable among Asean member countries. It is 47.44% lower than the price in Indonesia (RM3.90) and 54.24% lower than Vietnam’s (RM4.48).

The current subsidy system across the board is flawed because it benefits the rich rather than the poor. The reason is that most cars, including many expensive ones, can also run on RON95. This means the petrol price subsidy would be unevenly distributed between the various income groups, with those in the lower income bracket benefiting less since they are more likely to own fewer and lower engine capacity vehicles. Moreover, subsidised petrol is open to abuse, including smuggling.

The government should consider adopting the electronic subsidy card system to provide targeted subsidies to those in the B40 group for the purchase of RON 95, cooking gas (LPG), cooking oil and even other price-controlled items. The lower Middle 40 (M40) group should be provided aid as well.

The government can credit fixed minimal monthly subsidies into the person’s electronic subsidy card, which he/she can then use to purchase petrol, cooking oil, cooking gas and whatever the government decides to subsidise. To make a purchase, the person just needs to show his or her identification card for validation purposes.

Blanket subsidies are not sustainable as they stress the country’s coffers. In 2020, the government spent Rm4.66bil in subsidies; in 2021, Rm13.13bil; and in 2022, close to Rm80bil, which has been described as the “highest in history”. At Rm80bil, the subsidy is more than the Rm52.6bil allocation to the Education Ministry or the Rm32.4bil to the Health Ministry in 2022.

With the savings on subsidies, the government should improve public transport, ensuring frequent service as well as an efficient feeder bus system for greater convenience to commuters.

Issuing electronic subsidy cards to the poor and effective control of food prices should be the priorities to improve the people’s livelihood.

Such an electronic subsidy card is relatively easy to implement since the government already has the database of B40 recipients for various forms of aid, while the Inland Revenue Board should have the data on the lower M40 group.