Time to rein in subsidies

MINISTRIES are now in the crosshairs of the Finance Ministry, as they’re being asked to tighten their belts to cope with the massive fuel subsidies that have wrecked havoc on government finances.

With the fuel subsidy bill running at a scorching RM6bil to RM7bil a month, the original fuel subsidy allocation of RM15bil under Budget 2026 has been exhausted.

That has led to an initial scrounging of RM10bil in savings from ministries to help pay for the fuel bill, but it is obvious that this is not enough. What will the continued heavy burden mean for the fiscal deficit and the services the government is expected to provide to its citizens?

Fuel subsidies and cash assistance to the public was set at RM49bil under Budget 2026, while the fuel subsidy bill alone is projected to hit RM58.4bil in 2026.

We know petrol prices are heavily subsidised for political purposes, and anytime people mention the price of petrol is higher in Saudi Arabia than in Malaysia, the response is often that we are not living in Saudi Arabia.

That deflection to suggest petrol subsidies are relevant in Malaysia belies the fact that the country is no longer a net exporter of crude oil. We import much of our crude oil needs as crude oil exports have halved from previous years when Malaysia was a net exporter.

The drop in domestic production has also meant that Malaysia’s Tapis blend no longer commands the premium it once did, with Tapis now trading lower than Brent. In other words, Malaysia is producing less crude oil and selling it at a lower price than before.

But now that the complications arising from the war in Iran are likely to linger for months, the next step is to slash expenditure.

Budget cuts are not new. In the past 20 years, the federal budget has been lower than the preceding year’s allocation only twice.

The first was in 2010, after then government launched a pump-priming budget in 2009 to cushion the impact of the global financial crisis.

In 2009, the government injected an extra RM67bil via a stimulus package to support the economy. The fiscal deficit that year stood at 6.7% of gross domestic product or GDP.

The next time the budget was reduced was in 2026, as the government prudently scaled back subsidies and decided it did not need large fiscal deficits moving forward.

This was also in line with the medium-term fiscal framework, where prudence in government expenditure was inculcated by exercising discipline in bringing the fiscal deficit under control.

First things first: expenditure cuts. Logically, the ministries that receive the most money should see the largest cuts, but it is not so straightforward.

The Education Ministry surely has areas at the margins where spending can be rationalised. We need to ask whether public funds are being spent as effectively as possible.

Year after year, the Education Ministry will say “best-ever results” after the SPM results are announced. Yet year after year, our scores in international benchmarks do not reflect the same level of optimism espoused by the ministry.

Both the Programme for International Student Assessment, or PISA, and Trends in International Mathematics and Science Study, or TIMSS, rank Malaysia below the Organisation for Economic Cooperation and Development average and behind several regional peers.

What is the point of becoming a jaguh kampung in education when we perform poorly on international assessments?

Surely money is not the issue, given that education consistently receives the bulk of the budget allocations. Maybe it is time to reassess how we spend the money and economise rationally to get the best from education.

Red ink should be judiciously applied to the budget of a number of ministries, as surely largesse in spending has crept into the national budget over the years.

Although healthcare is also a large source of expenditure, news of long waiting times, insufficient beds, and shortages of doctors and nurses suggest it should be spared from blanket cuts.

There should not be a top-down approach to expenditure reductions.

Another area that remains underfunded is defence.

Suggestions that our national defence capabilities – including ships and aircraft – should be sacrificed by bean counters to offset the subsidy bill, should be given a serious rethink.

The one area that is obvious where cuts should be made, is the subsidy bill itself. As discussed earlier, we have passed the time of continuing broad-based petrol subsidies.

However, with elections around the corner, removing them would be political suicide.

Yet, doing so would go a long way towards addressing the nation’s funding issues.

Additionally, to continue giving cash handouts that just keep growing larger and presenting a drain on government revenue in the name of universal basic income, is something the government should re-examine. 

What began as a RM1.8bil programme has grown to around RM13bil.

Again, this would be difficult to unwind. But a start could be made by avoiding large increases each time the scheme is renewed annually.

Welfare payments of such are now proving to be a strain, given the ballooning subsidy bill that needs to be brought under control.