Reforming subsidy system will be beneficial in long term, say experts

Rationalising spending: The government announced in Budget2024 plans to implement trageted subsidies for diesel and RON95 petrol.

PETALING JAYA: Short-term pain for long-term gain - that’s how economists and consumers groups are describing the government’s move to reform the subsidy system this year.

The short term pain will be mostly felt by high and upper middle income households as the government ends blanket subsidies for petrol and diesel, which the Prime Minister has said costed the government’s RM81bil in 2023.

However, in the long term, the money saved could be channelled to those who would need it the most and for development programmes, said Emeritus Prof Dr Barjoyai Bardai in an interview.

“When the poor are able to stand on their own feet and the cost of living is reduced, people will be able to spend.

“When this happens, the government will be able to use the extra money to focus on the M40 and T20 groups,” said Barjoyai of Universiti Tun Abdul Razak (UniRazak).

He said although the targeted subsidies might seem to only benefit the B40 group, this was actually not the case as the government’s new Central Database Hub or Padu – to be launched in January – would ensure that those who needed the subsidies would not be left behind.

“With Padu, we won’t have the terms B40, M40, or T20 anymore. Everyone who needs the subsidies will get it, including those currently in the M40 and T20 brackets, not just the B40 group.

“For example, a person may currently be classified in the T20 group because he used to work as a pilot but he may have lost his job and is now selling nasi lemak. Clearly, this person needs to be included for targeted subsidies,” he said.

In Budget 2024, the government announced that among others, it would implement targeted subsidies for diesel and RON95 petrol, with this to be only enjoyed by selected consumers, such as those in the lower income bracket and cargo transport companies.

It was reported that diesel subsidies would be rationalised in phases while a targeted RON95 subsidy would be introduced in the second half of 2024.

Barjoyai said the money saved from the targeted subsidies would be used for other pressing matters, such as providing additional aid to the poor, eliminating hardcore poverty, reducing the cost of living and funding the Progressive Wage Policy.

The Progressive Wage Policy pilot project, which will see 1,000 companies provided with cash incentives to raise the salary of their employees in tandem with increased productivity, will reportedly cost at least RM2bil.

“Effective plans require short, mid and long term solutions. In this case, the short term solution is focusing on hardcore poverty and those making low wages.

“For mid to long term solutions, the government can afford to focus on the middle and high income groups when the lower income group is already stable,” he added.

Consumers’ Association of Penang president Mohideen Abdul Kader said a blanket subsidy would only cause the economy to suffer as it would require the government to borrow money.

“The M40 and T20 will not be impacted heavily by the targeted subsidies plan because they have high income and can absorb the increase in prices.

“It needs to be done at one point or another. Otherwise, the system and ultimately, the economy will suffer because the government has to keep borrowing money to give out subsidies,” he said.

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