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Malay Mail
22-05-2025
- Business
- Malay Mail
Malaysia's fuel subsidies waste billions and worsen inequality, economists warn
KUALA LUMPUR, May 22 — Universal fuel subsidies have long helped Malaysians cope with the rising cost of living, but economists now warn that blanket subsidies may be doing more harm than good. While they reduce costs for consumers, such subsidies often lead to overconsumption, smuggling, and a disproportionate benefit to higher-income groups. 'There is a tipping point, and we are already beyond that point,' economist Geoffrey Williams, who supports a move towards targeted subsidies, said in a Free Malaysia Today report. He said this occurs when inequality grows and the cost of subsidies outweighs their intended social impact. Economist Madeline Berma said subsidies are not inherently flawed but often miss their intended targets, with wealthier Malaysians enjoying most of the benefits. 'They're poorly targeted; the wealthier groups, not the vulnerable ones, are absorbing a big chunk of the benefits,' she said. She praised efforts such as the Budi Madani programme, which the finance ministry said saved more than RM7 billion by reducing leakages and diesel smuggling. Universiti Malaya economist Goh Lim Thye highlighted that nearly 40 per cent of the RON95 subsidy, valued at RM8 billion, benefits the richest 15 per cent of the population and foreign nationals. 'Money lost to leakages and inefficiency could have gone into healthcare, digital infrastructure, or climate resilience — it's not just inefficient, it's unfair,' Goh said. Williams warned that prolonged subsidy protection can harm Malaysia's long-term economic competitiveness, while Madeline cautioned that failure to act now could hurt investor confidence and the country's fiscal credibility.
Free Malaysia Today
22-05-2025
- Business
- Free Malaysia Today
Failure to curb subsidy leakages risks economic liabilities, says economist
An economist says public distrust of the government is fuelled by leakages, particularly when unqualified recipients benefit from government subsidies. PETALING JAYA : Subsidy leakages severely undermine economic efficiency and fiscal discipline, and if left unchecked, could result in significant liabilities, says an economist. Goh Lim Thye of Universiti Malaya said the short-term consequences of such leakages include direct revenue losses, weakened impact of fiscal transfers and a decline in credibility in public spending. 'In the long-run, these leakages create systemic distortions: they entrench rent-seeking behaviour, reduce incentives for energy efficiency, and delay the necessary shift towards a more targeted, sustainable subsidy framework. 'Without reform, subsidies risk becoming politically entrenched fiscal liabilities rather than tools for equitable development,' he told FMT. Another economist, Madeline Berma of Institut Masa Depan Malaysia, said leakages also fuel public distrust, particularly when unqualified recipients benefit from government subsidies. 'Subsidy leakages can also potentially exacerbate income inequality which also creates opportunities for corruption and rent-seeking behaviour,' she added. She said that while reforms have been implemented, Malaysia is still grappling with leakages and has yet to entirely eliminate them. However, she noted that the government's move to rationalise diesel subsidies in June last year had led to significant decrease in leakages. Earlier this month, the government ended price controls on eggs and reduced subsidies from 10 sen to 5 sen per egg, with full removal set for Aug 1. The agriculture and food security ministry said prolonged price controls and subsidies were unsustainable in the long term for both local egg producers and the country's fiscal health. It said rationalising subsidies was the fairer approach, as subsidies are currently also enjoyed by foreign nationals and high-income groups. 'By resetting the system and using technology to monitor eligible recipients, the government has saved RM7.5 billion without harming those genuinely in need of subsidised diesel,' said economist Geoffrey Williams. He said success in tackling leakages not only saves money for more meaningful public spending, but also eliminates the broader disadvantages of subsidy-related corruption. The funds saved could be redirected to for health services, education, and social protection, encouraging a return of public trust. 'It cuts out all the disadvantages of subsidies and removes market distortions, creating a more competitive, agile and efficient system,' he said.
Free Malaysia Today
22-05-2025
- Business
- Free Malaysia Today
Redirect subsidy reform savings to strengthen federal aid initiatives, says expert
The subsidy for RON95 benefits the richest Malaysians disproportionately. PETALING JAYA : An economist and a consumer group have urged the government to ensure that savings from fuel subsidy rationalisation be used to strengthen federal aid initiatives such as Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (Sara). Goh Lim Thye of Universiti Malaya and the Federation of Malaysian Consumers Associations (Fomca) told FMT such reforms are essential and timely given that blanket subsidies tend to benefit high-income households disproportionately. Goh pointed to data shared by Prime Minister Anwar Ibrahim showing that foreign nationals and the richest 15% of Malaysian consumers enjoyed as much as 40%, or RM8 billion, of the RON95 petrol subsidy last year. 'Blanket fuel subsidies are fiscally draining and structurally regressive, especially when higher-income households, who drive more and own multiple vehicles, end up receiving a larger share of government support,' he said. 'To ensure long-term sustainability, Malaysia must move away from untargeted, consumption-based subsidies toward a more needs-based, data-driven social support system,' he added. Finance minister II Amir Hamzah Azizan previously said the government is expected to save between RM7.2 billion and RM7.5 billion annually by introducing targeted diesel subsidies, almost double the initial forecast of RM4 billion. The government rolled out the targeted subsidy for diesel in mid-2024, while the subsidy for RON95 is likely to be rationalised by mid-2025. Goh said that reforming the subsidy system could help preserve public funds for key aid initiatives, including child nutrition, elderly care, and targeted cash assistance such as STR and Sara. 'Savings from such reforms, potentially in the billions, could also be redirected to enhance the depth and coverage of existing safety nets, support rural development, or improve critical services like healthcare and education,' he added. Fomca CEO T Saravanan said subsidy schemes should be implemented with a 'clear, transparent, and fair' targeting mechanism that includes robust monitoring and enforcement to prevent profiteering. 'Subsidy reform is critical for long-term fiscal and social sustainability, but it should be gradual, inclusive, and accompanied by effective communication and engagement with consumers to prevent shocks and negative public sentiment,' he said. Saravanan added that any move to redirect savings must lead to broader coverage and increased payouts in aid programmes to ease cost-of-living pressures. For Goh, the fuel subsidy rationalisation move is ultimately a test of the government's readiness to make difficult choices. 'Accurate targeting (also) depends heavily on reliable and timely socioeconomic data. (Therefore) platforms like the central database hub (Padu) must be updated continuously and verified to avoid exclusion errors,' he said. 'Without that, even well-intentioned redistribution could fail to benefit those most in need, undermining public trust and policy,' Goh added.
Free Malaysia Today
21-05-2025
- Business
- Free Malaysia Today
Targeted subsidies will help rural folk more, says economist
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.'
