While it is difficult to estimate the exact cost savings to the country’s coffers, the T20 income earners form quite a big part of consumption of subsidies, said Lee.
KUALA LUMPUR: Any plans for a targeted subsidy regime implementation may save up to RM25bil or more from the government’s expenditure, according to some estimates.
However, leakages from the current open subsidy system should also be plugged since this is a hidden cost element of which the full extent may not yet be known now, said economists.
Leakages are due to parties profiting from the price differentials from the market prices of fuel outside of the country and what’s sold within the country.
It was reported earlier that the use of diesel jumped 37.7% at 6.1 billion litres in 2019 to 8.4 billion litres in 2022, while the number of registered vehicles that used diesel increased by a much smaller rate of 2.4% from 2.08 million in 2019 to 2.13 million in 2022.
The government had allocated RM80bil for subsidies last year, which was the highest in history.
Of this allocated amount, some 63.5% or RM50.8bil was spent on subsidies for fuel in 2022.
According to Deputy Finance Minister Datuk Seri Ahmad Maslan recently, some 35% of the fuel subsidy benefited those in the T20 income bracket.
Hong Leong Investment Bank Research (HLIB Research) estimated that the subsidy retargeting for electricity and diesel may give rise of up to some RM20bil-RM25bil in savings which accounts for some 1.1% to 1.3% of the gross domestic product.
Meanwhile, Socio Economic Economic Research Centre’s executive director Lee Heng Guie said while it is difficult to estimate the exact cost savings to the country’s coffers, the T20 income earners form quite a big part of consumption of subsidies.
He noted that capping or removing their subsidies may have some initial impact at first.
“If let’s say the T20 had less money to spend due to higher prices of electricity or petrol, then the economy might be slightly impacted initially but the market would adjust in the longer term to the new supply-demand picture,” Lee told StarBiz.
“The question is how to implement the new system as this has been talked about for quite some time now by previous government administrations. It may be easier to administer targeted subsidies for electricity but for petrol it is difficult to, at least on the surface of it,” he added.
Lee said in the practical sense, it may be difficult to implement targeted subsidies, for example a dual pricing mechanism, at the petrol pump and recalled a way which was done by a previous government administration that gave cash handouts after increasing petrol pump prices.
“They have to come up with an approach which is feasible and easy to administer to implement this new subsidy system. There may be some worries on the impact on consumption on the economy and inflation now,” he said.
Meanwhile, the renewable energy route may help contain some electricity costs for those who may not enjoy subsidies anymore.
Any plans of such nature to encourage more households to adopt and instal solar panels is also aligned with the government’s decision to float electricity prices for commercial and T20 households who have high usage.
