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Malaysiakini
26-05-2025
- Business
- Malaysiakini
Unaddressed subsidy leakages could result in significant economic liabilities, says economist
Subsidy leakages severely undermine economic efficiency and fiscal discipline, potentially leading to major liabilities if not addressed, according to an Lim Thye of Universiti Malaya noted that in the short term, these leakages can cause 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. Leakages erode trust and widen inequality 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. Rationalisation efforts show promising results 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. The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini. Interested in having your press releases, exclusive interviews, or branded content articles on Malaysiakini? For more information, contact [email protected] or [email protected]
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
21-05-2025
- Business
- Free Malaysia Today
Blanket subsidies bring more harm than good, say economists
An economist believes that subsidy reform will become harder to accomplish the longer subsidies remain, as the public will begin to see them as entitlements. PETALING JAYA : While subsidies have long been positioned as a tool to help ease the burden of living costs, economists warn that the cost of keeping blanket subsidies afloat may be higher than we think. While fuel subsidies have helped cushion citizens from rising costs, they've also come with unintended consequences such as overconsumption, leakage, and a disproportionate benefit to higher-income groups. 'There is a tipping point, and we are already beyond that point,' says economist Geoffrey Williams bluntly. 'This is why implementing targeted subsidies is essential.' He said the tipping point is marked by growing inequality that usually occurs when the cost of the subsidies outweigh their intended benefits. But the challenge isn't just about how much subsidies cost, but also the damage that it costs when left unchecked. The cost of doing nothing Economist Madeline Berma argues that while subsidies are not inherently bad, the current design often benefits those who least need them. 'They're poorly targeted. The wealthier groups, not the vulnerable ones, are absorbing a big chunk of the benefits,' she says. She notes that the government has already made commendable progress in rationalising diesel subsidies and rolling out targeted initiatives such as the Budi Madani programme. According to the finance ministry, the programme has helped save approximately more than RM7 billion, with significant reduction of smuggling and leakages. Universiti Malaya's Goh Lim Thye takes it a step further, saying that blanket subsidies become liabilities and encourage wastage when reforms are delayed. 'Nearly 40% of the RON95 fuel subsidy amounting to RM8 billion benefits the wealthiest 15% of the population and foreign nationals,' he said. By 2023, fuel subsidies had ballooned beyond RM50 billion annually, more than the budget for health and infrastructure combined. That inefficiency has a ripple effect as funds that could be channeled into more productive avenues, such as digital infrastructure, or education. '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. Another 'silent cost' was that of entrenchment. The longer subsidies remain universal, the harder it is to carry out reforms as 'the public begins to see them as entitlements' and the political window for reform starts to close. Williams said excessive protection through subsidies would also weaken economic vitality in the long run. 'Companies are less competitive if they are protected with subsidies, and this makes Malaysia as a whole less competitive, agile and innovative,' he says. Madeline said that without timely action, Malaysia would be at risk of missing its own fiscal targets, weakening investor confidence. 'Subsidy reform isn't just about economics. It's about national credibility and long-term resilience,' she said.
