KUALA LUMPUR: The government’s plan to introduce targeted subsidies in 2024 is the right move to ease its fiscal burden and strengthen the country’s economic situation, said Bank Muamalat Malaysia Bhd chief economist and social finance head Dr Mohd Afzanizam Abdul Rashid.
He said Malaysia is among the top countries in terms of subsidies provided, especially for petroleum products.
"The government must gradually implement consistent subsidies to minimise inflation. In terms of timeframe, it is difficult to determine. In my opinion, it has to be implemented as soon as possible.
"However, communication with the people, as well as the addition to the allocation of the Rahmah Cash Aid (STR), has to be done simultaneously so that the effect of subsidy reduction can be minimised,” he told Bernama.
According to the Auditor-General’s report, national subsidy expenditure amounted to RM55.4 billion in 2022 and from that amount, petroleum subsidies stood at RM45.2 billion, representing 81.5 per cent of total subsidies.
A managed float system helps to reduce subsidies
Mohd Afzanizam said the move to reduce petroleum products subsidies is needed especially if it only benefits the high-income group.
Besides that, targeted subsidies could prevent leakages of petroleum products such as smuggling activities and subsidised oil being used by foreigners.
"A managed float system has been implemented for RON95 fuel and diesel in 2014 and it has reduced the amount of subsidies.
"Maybe that mechanism can be adopted again to ensure government aid can be more targeted where subsidy savings can be channelled to programmes such as STR and development expenditure,” he said.
The government spent RM39.7 billion on subsidies in 2014 and allocation for subsidies showed a declining trend after the implementation of the managed float.
Total subsidies stood at RM27.3 billion in 2015, RM24.7 billion in 2016 and RM22.4 billion in 2017.
Reformation of subsidies to encourage EV adoption
Mohd Afzanizam said targeted subsidies will have an impact on the personal budget of the top 20 (T20) per cent income group.
"Therefore, reformation of subsidies can be a starting point to encourage the use of electric vehicles (EV),” he said, adding that to encourage the penetration of EVs in Malaysia, the government has announced an EV tax exemption until Dec 31, 2025. - Bernama
