23-05-2025
- Business
- Free Malaysia Today
Targeted subsidies can strengthen nation's finances
Economists believe delaying proactive measures such as targeted subsidies could be detrimental in the long run, especially in increasing national revenue.
PETALING JAYA : Economists are urging the government to continue strengthening the country's fiscal position to ensure sustainable finances for ongoing aid programmes and to prepare for the impact of global trade tensions.
Speaking to FMT, Ahmed Razman Latiff of the Putra Business School warned that delaying proactive measures such as targeted subsidies could be detrimental in the long run, especially in terms of increasing national revenue.
He said implementing targeted subsidies for RON95 petrol could save the government at least RM8 billion annually while also curbing subsidy leakage to groups such as foreigners and the wealthy.
'The government has already assured the public that the vast majority of users will still benefit from subsidies once targeted subsidies are implemented.
Ahmed Razman Abdul Latiff.
'Although 15% will no longer receive subsidies, the savings could amount to RM8 billion or more,' he said.
'These funds can then be channelled for more beneficial fiscal management of vulnerable groups, including increased aid for the Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) programmes.'
Ahmed also linked the need for proactive fiscal steps to current geopolitical tensions, particularly the trade war between the US and China, suggesting that any savings could help support those affected by the situation.
Previously, the government decided to shift from blanket subsidies to targeted ones to manage expenditures more prudently and strengthen the nation's finances.
In June last year, targeted diesel subsidies were introduced in Peninsular Malaysia, which finance minister II Amir Hamzah Azizan said could save between RM7.2 billion and RM7.5 billion — a figure larger than the RM4 billion initially projected.
When announcing the tabling of the 2025 budget last year, Prime Minister Anwar Ibrahim, who is also the finance minister, said the government planned to implement targeted RON95 petrol subsidies by the middle of this year.
He said 85% of Malaysians would not be affected by this move.
Reducing budget deficit with subsidy reforms
Aimi Zulhazmi Abdul Rashid.
Aimi Zulhazmi Rashid, from Universiti Kuala Lumpur, said RON95 rationalisation needs to be implemented immediately as fuel subsidies represent a large part of the total operating expenditure.
He warned that delaying targeted subsidies could jeopardise the government's goal of reducing the budget deficit to 3.5% by 2027, thereby impacting long-term financial resources. Last year, the budget deficit was 4.1%.
Aimi acknowledged that while the move could negatively affect domestic economic growth for a year or two, it would yield long-term benefits.
'Government finances can be restructured in the short term for long-term prosperity for both the nation and the people.
'It's a case of 'short-term pain for long-term gain',' he said, adding that inflation is expected to rise for goods and services during the early phase of the subsidy restructuring.
Aimi also suggested that the government announce the implementation mechanism early, giving more time for those affected to prepare in advance.
'People are eagerly awaiting details on how RON95 will be implemented — whether it will involve using MyKad and how the enforcement will be carried out at petrol stations,' he said.
'This is crucial as it directly impacts their daily living expenses.'
