22-10-2024 (KUALA LUMPUR) Malaysia’s government is steeling itself for potential public backlash as it prepares to implement a “once-in-a-generation” overhaul of its long-standing petrol subsidy programme. Economy Minister Rafizi Ramli has acknowledged the challenges ahead but emphasised the crucial nature of this fiscal reform in an interview with Bloomberg TV released on Monday.
“We are prepared for the choppy waters ahead,” Mr Rafizi stated, anticipating significant public reaction to the changes. “Obviously there will be people affected and there’ll be people unhappy with it and people have to adjust their consumption, so I do expect a lot of noise in the beginning.”
The reform, announced by Prime Minister Anwar Ibrahim during his recent Budget speech, aims to cut subsidies for RON95 fuel for the country’s top 15 per cent income bracket. This move is expected to save the government a substantial RM8 billion, which will be redirected towards programmes aimed at improving the welfare and livelihoods of Malaysians.
Currently, Malaysia spends approximately RM20 billion (US$4.63 billion) annually on blanket subsidies for RON95 petrol, a system that has been criticised for disproportionately benefiting high-income earners and foreigners. The sale of RON95 petrol is presently reserved for Malaysian-registered vehicles only.
Mr Rafizi emphasised that household income will not be the sole determining factor in deciding who qualifies for subsidised petrol. “We can’t draw a line based only on household income. We have to consider other variables and not apply a one-size-fits-all approach,” he explained to local media.
The government is currently conducting simulations and processes in collaboration with various ministries and departments to determine the most equitable approach. Second Minister for Finance Amir Hamzah Azizan confirmed that details of the subsidy implementation, including income thresholds and mechanisms, are still under discussion and will be announced next year.
One proposal under consideration involves Malaysians presenting their government-issued identity card or MyKad at petrol pumps, as suggested by Transport Minister Anthony Loke.
The impending reform marks a significant shift in Malaysia’s economic policy. Since the early 1980s, the country has subsidised petrol prices to keep fuel affordable and facilitate economic growth. However, with rising oil prices, this policy has become an increasingly significant burden on government expenditure. In 2023 alone, Malaysia spent over RM50 billion (US$11.6 billion) on direct fuel subsidies.
The government has already taken steps towards subsidy reform, having cut diesel subsidies in June this year. This resulted in a price increase of about 50 per cent for diesel fuel, although the government provided cash assistance to eligible vehicle owners, small-scale farmers, and commodity smallholders to mitigate the impact.
As Malaysia navigates this complex transition, the government faces the delicate task of balancing fiscal responsibility with public sentiment. The success of this reform could set a precedent for future economic policies in the region and will be closely watched by economists and policymakers alike.
Mr Rafizi concluded with a note of determination, stating, “Our responsibility in the government is to make sure that we manage this properly so that it is sustainable.” As the middle of next year approaches, all eyes will be on Malaysia as it embarks on this challenging yet potentially transformative economic journey.
