PETALING JAYA: The proposed targeted approach by the government should focus on subsidies that cost the most, those mired in corruption and subsidies which involve basic necessities, says an economic expert.
Malaysia University of Science and Technology economics professor Dr Geoffrey Williams said as the government mulled targeted subsidies, a tiered pricing mechanism could be introduced for items like diesel which “involves large corruption costs”.
“The corruption cost is estimated at RM10bil. Petrol subsidies are much less of a concern now as oil prices have fallen.
“Petrol has always been subsidised in Malaysia, so while tiered prices can be introduced to reform the system overall, there is no reason to end subsidies completely. This would just raise petrol prices and make life tougher for everyone,” he said.
He cautioned that prices might increase and cause a sudden spike in inflation if subsidies were removed too quickly.
Prof Williams said that electricity subsidies have risen because generating costs have remained high.
“The government can save around RM4bil by removing subsidies for the T20 and large corporate users, and these are easy to identify,” he said.
All other subsidies on products and consumers, he said, account for around RM21.5bil and the priority should be to remove those that cause market distortion, such as cooking oil, chicken and eggs.
“All consumption-based subsidies should be replaced by income subsidies,” he said.
Prof Williams said income subsidies were better, in the form of a reverse income tax, cash transfers or universal basic income.
“They benefit the poor disproportionately. They cost much less than consumption subsidies because they are targeted. They distort the market less, and they do not involve middlemen, so leakages and corruption are massively reduced,” he said.
However, he noted that the pushback from vested interest groups that were benefiting from the subsidies could be a potential problem, as they wanted the subsidies to continue and will resist any reforms.
Ahmad Yazid Othman, a member of the National Cost of Living Council and a senior fellow of the Malay Economic Action Council, said the government should conduct an in-depth study on net disposable income among Malaysians because it was vastly different according to areas and standards of living.
“The government should also be clear to communicate the purpose better. If it is meant for more schools, hospitals and public amenities, then tell the rakyat for how many and where?” he said.
Associated Chinese Chambers of Commerce and Industry of Malaysia treasurer-general Datuk Koong Lin Loong agreed that targeted subsidies had to be carried out in phases to help cushion the after-effects.
He said there should be a soft landing as it would have an impact on consumers.
“For example, with the electricity subsidy, the impact on manufacturing will increase the cost of operations.
“Even for petrol or diesel, we cannot do it at one go, this will directly eat into day-to-day business because there are small businesses that use private cars. This will activate inflation.
“So, when it is rolled out phase by phase, the impact will not be felt as much,” he said.
The money saved from subsidies should also be put to good use, such as public transportation, which will indirectly see fewer cars on the roads, Koong said.
Datuk Ameer Ali Mydin, co-chair of the Special Task Force to Facilitate Business (Pemudah), suggested that the existing data of the B40 group be used to implement targeted subsidies first.
“Then it can be fine-tuned as we go along, as I’m sure there are many homeless people who are still not captured in the system,” he said.
While many Malaysians are not taxpayers and it has been hard to get the related data about those who work in private firms, Ameer Ali said it was better to remove general subsidies.
“This is despite the hardships in implementing a targeted fuel subsidy due to varying income levels and possible leakages,” he added.
Sunway University economics professor Dr Yeah Kim Leng said it is important to differentiate between good and bad subsidies.
“Good or progressive subsidies cover those that increase consumption of healthcare, skills training and education services as well as those that expand research, development and entrepreneurial activities.
“By cutting fuel and electricity subsidies, spending on more productive activities will result in a more resilient society and efficient economy,” he said.
The targeted approach is more efficient and less burdensome to the government compared to a blanket subsidy for all, regardless of need and affordability, he added.
Malaysian Federation of Hawkers and Petty Traders Association president Datuk Seri Rosli Sulaiman suggested the use of a specific prepaid card system only available for traders and hawkers for the disbursement of subsidies.
“The prepaid card system allows the traders to earn points and coverage under the Socso, something that they never had in the past.
“With this card system, the subsidies are directly given to the deserving lot because you can trace the right recipient, thus making it a targeted mechanism,” he said.
On Wednesday, Economy Minister Rafizi Ramli announced that targeted subsidies would be implemented and the B40 and M40 categorisation will be phased out by next year.
He said the new approach would be based on net household disposable income.
Last month, Prime Minister Datuk Seri Anwar Ibrahim announced that those in the T20 income group would no longer enjoy subsidies for electricity.
