MUCH has been written about Budget 2024. As pointed out by our commentators on this subject, it is not easy to draft a budget for Malaysia amidst the seemingly gargantuan challenges the country faces.
These range from a widening deficit and debt situation, structural legacy issues such as the massive subsidy bill, an unsustainable pension bill alongside a growing gap between the rich and poor, coupled with a global economic malaise.
But sometimes you need to take the bull by the horns. Not enough has been done about fuel subsidies and instead, a potentially damaging decision has been made to remove the ceiling price of chicken and eggs.
Malaysia still has the cheapest petrol and diesel prices in South-East Asia. Cheaper than Laos, Indonesia, Cambodia and Vietnam, to name a few.
As the adage goes, petrol in Malaysia is still cheaper than a bottle of mineral water. It is true that even the poor enjoy this benefit and this is why the long-mooted plan was to have a targeted subsidy.
Only now is the government proposing to introduce in phases from next year, a targeted subsidy for diesel. Nothing has been mentioned yet for RON95.
The total fuel subsidy bill of RM50bil isn’t just costing way too much, it is also benefiting certain parties. In 2022, Malaysia spent RM55.4bil on subsidies out of which, 81% was petroleum products, mainly diesel and RON95.
The affluent who enjoy cheap fuel, the opportunistic smugglers who make a huge tax-free gain of getting our cheap fuel into neighbouring countries and lastly, the five main fuel retail players in the country.
It should be noted that under the archaic automated pricing mechanism (APM), pump prices are determined in Malaysia.
The APM also leads to the calculation of the total cheque that the government of Malaysia writes to these retail players every year to subsidise their pump price.
The government should look at tweaking the APM – get these fuel retailers to absorb some of the cost which can lead to a lowering of the subsidy bill.
Are their profit margins too high? Even a small percentage drop in their profit margins, can lead to a meaningful reduction in our subsidy bill for fuel.
That would have been a better thing to do rather than remove the ceiling price for chicken and eggs which is certainly more essential than fuel. Eggs remain the cheapest protein source for the poor. They will now have to cough up more when prices are allowed to float.
The removal of the chicken and egg price ceiling has its merits in the sense that it ensures consistent supply of the produce.
But a system had been in place to subsidise the poultry farmers who suffered losses when prices were capped. Why can’t that system be extended to ensure prices don’t go out of reach of the poor? It is interesting that this government says that the floating of prices was one way to ensure only eligible citizens, not foreigners or the wealthy, benefit from subsidies.
But that argument is even more applicable for fuel prices and yet, no change is taking place to remove subsidies for RON95. Even for diesel, it will be slowly implemented, when it should have been done sooner.
No wonder Dr Mohd Afzanizam Abdul Rashid of Bank Muamalat Malaysia Bhd points out in his op-ed that the budget misses this crucial point as it does not mention how fuel subsidy removal will be implemented.
Another feature of Budget 2024 is its huge expansionary aspect as it contains the government’s biggest federal spending yet at RM393.8bil.
As Dr Carmelo Ferlito of the Centre for Market Education points out in his opinion piece, there is a dichotomy between the commitment towards fiscal responsibility, with a deficit target at 3% of the GDP for the medium term, and the record spending defined in the PM’s speech as expansionary.
He points out that the way we calculate GDP may lead us to believe that any increase in government spending will generate economic growth. “But spending per se is a perilous tool that, while bringing growth, may also lead to inflation and economic instability,” he points out.
Meanwhile, Prof Goeffrey Williams of the Malaysia University of Science and Technology says that while this budget is more fiscally responsible and while governance has improved, there needs to be more transparency and a clear method for accounting for the outcomes of the spending.
Another commentator that we feature is Zokhri Idris of Global Asia Consulting. He addresses the elephant in the room – why not bring back Goods and Services Tax (GST).
“Malaysia had an integrated taxation mechanism, which identified each point of tax resources but this was stopped by the administration in 2018.
“The GST provides accountability of every user to contribute and play their part. Chances of abuse were minimal under the GST regime as it is a recorded and integrated system.
“GST helps the government enjoy an increase in revenue which is later distributed as aid to the people. GST is proven to be a circular value chain that benefits retailers, consumers and end users despite a price hike.”
