To Cut Petrol Subsidy?

 

Malaysia will have to unwind blanket state support for its most widely used gasoline by this year for the government to meet its own subsidy spending target, said the World Bank. The government is set to save about RM7.9 billion (US$1.8 billion) this year from the subsidy reforms it has already announced. It is still short of its aim to cut subsidies and social assistance programmes by RM11.5 billion in 2024. The Prime Minister has promised to replace broad subsidies with targeted assistance. This is to narrow the 2024 budget deficit to 4.3% of gross domestic product (GDP), from 5% in 2023.

 

Source: https://en.wikipedia.org

A timeline for the RON95 gasoline subsidy cuts has not been specified. Malaysia currently absorbs much of the price of fuel and cooking oil for its population, a move that was estimated to cost RM81 billion last year.

Malaysia is not collecting enough revenue to meet its spending needs, at some point, the government will have to contend with reintroducing the goods and services tax to tackle this, according to World Bank’s leading economist. A combination of progressive taxes, well-targeted subsidies, and adequate cash transfers can collectively benefit low-income groups while improving fiscal space to finance Malaysia’s longer-term spending needs, according to the World Bank.

It is quite easy to remove subsidies but quite painful for the B40 and M40. No matter what is said about the cash transfers, inflation will balloon! That’s a tax on the poor! You got to reduce subsidies in phases over a 3-year period. It is like an addiction, you do it gradually or the impact will be “cold turkey”. (Although Turkey may need it!)

Reference:

Malaysia must cut petrol subsidy to meet budget aim, says World Bank, Bloomberg/FMT, 8 October 2024