Targeted subsidies will help rural folk more, says economist

Free Malaysia Today

21-05-2025

An economist says higher-income urban households tend to benefit most from blanket subsidies because they consume more.
PETALING JAYA : Blanket subsidies in Malaysia are inadvertently widening the gap between urban and rural communities by disproportionately benefiting wealthier urban households, says an economist.
While subsidies are intended to ease the cost of living, Universiti Malaya senior lecturer Goh Lim Thye said blanket subsidies cover all consumers, leading to higher-income households often reaping the most benefits, despite being the least in need.
'From an economic standpoint, blanket subsidies are regressive: they apply the same per-unit benefit to everyone, regardless of income level or location,' said Goh.
'Because they scale with consumption, households that consume more fuel, electricity, or other subsidised goods inevitably receive a larger share of public subsidies. In practice, this means higher-income, urban households tend to benefit most.'
Goh noted that finance ministry data from 2022 confirmed this disparity, with the top 20% (T20) of households found to be receiving over 50% of fuel subsidies while the bottom 40% (B40) received just 13%.
This pattern reflects urban consumption habits: wealthier households often own multiple vehicles, live in larger homes, and use more electricity and energy-intensive appliances. They are also located in areas with full infrastructure coverage, ensuring consistent access to subsidised services.
Rural households, by comparison, generally consume less due to lower incomes and fewer vehicles. They may also face infrastructural limitations such as fewer petrol stations or inconsistent utility access. Rural communities often struggle with digital access, logistical challenges, and limited outreach, which can delay or even prevent their inclusion in subsidy programmes.
Goh noted that this issue is not unique to Malaysia.
Indonesia faced a similar problem prior to its 2014 reforms, when the richest 40% consumed 70% of fuel subsidies while the poorest 10% received less than 1%.
The Indonesian government then directed funds into targeted programmes which provided direct support to low-income households. The World Bank found these targeted programmes to be up to five times more effective at reducing poverty than fuel subsidies.
Goh said the benefits of targeted subsidies in Malaysia will only be fully realised if its implementation is inclusive and robust.
He pointed out that in rural Malaysia, households may be excluded due to outdated records, lack of digital access, or insufficient awareness of new programmes. These exclusion risks can erode trust and limit policy effectiveness.
To address this, Goh said the government must ensure frequent updates to beneficiary databases, provide mobile and community-level outreach in remote areas; and design user-friendly registration systems, including non-digital options for populations with limited connectivity.
'Paired with direct cash transfers like Sumbangan Tunai Rahmah and reforms to diesel and soon on the petrol subsidies, Malaysia can better direct support to households in need, particularly in rural and low-income segments,' he said.
'When done right, targeted subsidies can enhance both efficiency and equity, helping ensure that public spending delivers meaningful support to those who need it most, particularly in underserved rural areas.'