Is Budi95 beneficial to all?

IN just three days, Malaysians will enjoy a six-sen savings for every litre of RON95 petrol pumped into their vehicle, but there is little by way of jubilation.

Instead, the move has brought about more curiosity, rather than any actual significant financial benefit.

The impression all along has been that the government was looking to reduce its subsidy bill by a large amount. Under Budget 2025, the subsidy rationalisation of RON95 petrol was touted to be able to save the government some RM8bil a year from its RM20bil petrol subsidy bill.

Malaysians were later asked to fill out the Central Database Hub or Padu form, giving details of their income and other sensitive information to see whether they would be eligible for subsidised petrol.

Then, there was this big debate over just what the cutoff for the subsidy benefit would be. The great debate was about what would be the triggering threshold to demarcate between the well-offs – or super-rich – and the needy.

There was much argument over the income levels that ultimately setting household income as the benchmark, I guess, proved too contentious given that the high income status varied from state to state. Crossing the threshold would not take much in the more developed states.

There was much ado about the savings from the subsidy rationalisation by the government, and given the larger-than-expected savings from its diesel programme, there were expectations that even larger savings could be gleaned from the tricky petrol subsidy programme.

The RM8bil savings have now given way to just half of that. The RON95 subsidy scheme, called Budi95, aims to save the government up to RM4bil a year from plugging the leakages that now occur.

But the use of the savings has also changed. From the much more noble target of channeling the RM8bil towards better healthcare, education and public transport, the savings will now be given out towards other welfare programmes.

It looks like a cash transfer that has little productive gain in the long run.

The irony is that the cheaper petrol in itself is already a social welfare programme and now the savings from the RON95 rationalisation programme is going to be diverted to other welfare programmes instead of being used on more important issues like healthcare and education.

It would have been better to channel the savings as originally intended instead of in direct cash transfers. There is little long-term benefit in that.

Malaysia’s subsidy programme has been different from other regional countries in how it deals with the volatile oil prices.

Malaysia’s price at the pump at RM1.99 a litre will be the second cheapest in South-East Asia after Brunei by a sen.

The difference is that Malaysia’s economy is way more diversified than Brunei’s, which is reliant on the oil and gas industry.

By keeping the price of energy low, theoretically, inflation can be kept under control given that energy is a big component in inflation. That has allowed Malaysia’s inflation to be on the lower end in South-East Asia.

It could also keep in check living cost increases, which are already pressuring households.

However, I doubt the lower price of petrol is going to bring average prices down. Don’t hope for your roti canai to be any cheaper.

This method, however, exposes the government and the economy to higher fuel prices should the price of global energy rise.

It does not seem to be the case for now as the Organization of the Petroleum Exporting Countries or Opec is going to increase production but no one has the crystal ball as to where crude oil prices will go.

The downside for Malaysia is that lower crude oil prices decrease government revenue but it is a trade-off the authorities seem willing to make at this moment.

In the larger scheme of things, the government is now giving cheaper petrol to a populace that really was not pressuring the government to do so. Petrol prices in Malaysia are already among the cheapest in the world.

Allowing petrol prices to go lower only leads to more pressure should global prices go up.

The question is: what will a higher subsidy mean for the man on the street?

Yes, there will be savings but that will be offset by a slew of inflationary higher charges from a broader sales and service tax base and electricity and water charges.

Businesses that incur those higher charges will likely pass on the price increase to consumers.

This latest cut in petrol prices is incongruent with the policy direction of the government which has been to reduce subsidies. It also opens up fresh pressure points that may be counter-productive to the people in the long run.