THE government is taking a structured and phased approach to its review of subsidies to minimise potential disruption to business sectors and the rakyat.
This comes as the government re-evaluates the effectiveness of subsidies, incentives and assistance programmes to ensure they are channelled to those in need, while addressing leakages to the affluent and non-citizens.
"Cognisant of the shortcomings of the broad-based subsidy programmes, the government began shifting towards a more targeted and sustainable approach by realigning several key policies in optimising the subsidy allocation towards eligible recipients," said the 2025 Fiscal Outlook.
Post-Covid-19 pandemic, the government's gradual approach in transitioning from blanket subsidies to targeted subsidies has helped to mitigate inflationary pressures on the economy.
For example, the inflation rate remained modest at 2.5% in 2023 as compared to the global inflation rate of 6.8%, despite the phased implementation of the imbalance cost pass-through mechanism for electricity tariffs, as well as the abolishment of the subsidy and price control for chicken.
Subsequently, the roll-out of the targeted subsidy for diesel in June 2024 had a relatively contained effect on inflation, largely due to subsidies for selected business sectors.
In addition, there were targeted cash assistance and stricter measures to curb profiteering.
The government's targeted cash assistance programmes and other social assistance measures such as Sumbangan Asas Rahmah, Sumbangan Tunai Rahmah and Budi Madani have also cushioned the impact of subsidy retargeting, as observed by the stable growth in private consumption during the second quarter of 2024.
Moving forward, the effects of the retargeting of subsidies are expected to have a limited impact on inflation for the remainder of the year, said the report.
It added that the headline inflation is expected to remain within the official forecast of 1.5% to 2.5%. To minimise exclusion and inclusion errors, the government said it is employing big data initiatives in the implementation of subsidies.
A key development in this effort is the establishment of Pangkalan Data Utama (Padu), which is a centralised database to enhance the link between the targeted subsidy and intended recipients.
"The data in Padu will be leveraged in identifying the level of socio-economic development in the country and to assist in building scenarios for public programmes," said the report.
Meanwhile, the government is also pursuing further structural reforms to enhance the overall productivity and income levels of the rakyat, which will minimise the need for subsidy intervention policies.
The government has invested in human capital and capacity building through enhanced education and workforce development in creating a pool of more skilled and agile talent.
To this end, the government has rolled out several initiatives to increase the earnings of the lower income group, such as upskilling initiatives through technical and vocational education and training and entrepreneurship, as well as reviewing the minimum wage to support poverty reduction and fair labour practices.
