A petrol station staff checking IC at Petronas station in Bandar Kinrara.Photo for the story Mykad for the RON95 subsidary. .—AZHAR MAHFOF/The Star
PETALING JAYA: The privilege of Malaysians paying just RM1.99 per litre for RON95 fuel is unlikely to trigger a surge in consumption, according to Tradeview Capital founder and chief executive officer (CEO) Ng Zhu Hann.
He said consumption is determined by one’s need, and that need is largely driven by usage. In addition to that, there is a limitation to how much one can consume.
“I do not think it will cause any unnecessary usage because it is not a price sensitive good, but rather a necessity.
“Consumers consume based on necessity rather than choice. The good thing is with lower fuel prices, households would have marginally higher disposable income to be used for other spending within the economy,” he told StarBiz.
Earlier yesterday, Prime Minister Datuk Seri Anwar Ibrahim announced that Malaysians with an active driving licence, regardless of their income, would automatically be eligible to buy petrol at that price for up to 300 litres monthly.
The Budi Madani RON95 (Budi95) programme is set to come into effect nationwide on Sept 30.
According to Hann, this is a good move as it will curb wastage, and should have been implemented a long time ago.
“The purpose the government embarked on this exercise, and is starting it off as a pilot project, is to ensure the subsidy is used for the right group of consumers, in this case, citizens rather than foreigners.
“Having a lower fuel price serves to cushion the impact although it is somewhat populist in nature,” Hann said.
He added the move will also prevent any kind of backlash for implementation phases in terms of subsidy rollback.
On the move’s impact on Malaysia’s fiscal landscape, Hann said this may be impacted in the short run, but in the long run, it could very likely help.
“With proper implementation, it will help with our country’s subsidy bill and bring down the cost for subsidising fuel as we currently have the cheapest fuel in the region. For now, the government has extended the fuel subsidy to all citizens but it is likely to eventually become targeted for certain groups and exclude higher-income segments of society,” he said.
Hann said to do this, the government would need to properly assess the effectiveness of the current initiative.
“Until the execution is smooth and the desired outcome is achieved and well received by the masses, only then we can consider removing the subsidy eventually and raising the price to a normalised level,” he noted.
Meanwhile, economist Geoffrey Williams agreed – saying the reset of the RON95 petrol price from RM2.05 to RM1.99 is likely to reduce wastages, leakages and corruption in the old system.
He said savings will be made, and some of the impact will be compensated and this includes both the poor and the rich.
“High-income people will still get a discount on the first RM300 and this should reduce the backlash but many low-income people will not benefit from the full use of 300 litres.
Many low-income groups will not use 300 litres on their motorbikes,” he explained.
Furthermore, Williams said if the math were to be done, 16 million Malaysians saving six sen on a monthly maximum of 300 litres will equal to RM18 in monthly savings – costing the government RM3.45bil if it’s all used.
“The question is, where will the estimated RM8bil in savings come from? It looks like it will come from purchases over 300 litres per month, which will mostly be rich people, but will capture many middle-income people, especially those who need to drive to work,” he said.
On top of that, the extra will come in part from foreigners who will pay in full because they’re not eligible for subsidies.
“Unfortunately foreigners who work in Malaysia, contribute to the economy and pay taxes, will be hit hard by higher prices.
“This is discriminatory and sends bad signals in the market as foreigners who work here should be eligible for the discount,” he said.
Part of Anwar’s announcement said Malaysians will not need to register for the subsidised price, rather just verify using their MyKads’.
Geoffrey pointed out that there could be obvious risks with this.
He said some might resort to stealing others’ MyKad’s or using ones belonging to family members who do not buy petrol so they can sell it.
“We might see forecourt assistants offering their cards for money or Mat Rempit teenagers loitering around petrol stations offering discounts to wealthy drivers. The rich will get their drivers to pay for the petrol with the MyKad’s of family members.
“For criminal groups they could clone MyKad’s or set up syndicates to access discounted petrol, although this will be more difficult now.
“So this mechanism opens up many opportunities for corruption and will be difficult to monitor.”
