PETALING JAYA: The planned RM20bil subsidy to help middle- and lower-income folk cope with increased cost of living will help in the short term but it is not a feasible long-term solution, say experts.
Economists and a consumer group say there has to be transparency to ensure that billions are not misallocated.
They were commenting on the announcement by the Domestic Trade and Cost of Living Minister Datuk Armizan Mohd Ali that more than RM20bil has been allocated for subsidies on consumer goods, including fuel, this year.
Sunway University economics professor Dr Yeah Kim Leng said although the sum may look big, RM20bil only amounted to 1.1% of the country’s national income in 2024.
“It is justifiable from a public policy perspective as the cost of living is the biggest concern, especially for low-income groups whose spending on food and basic necessities is proportionally higher than the higher income groups.
“Without subsidies, there is a risk of uncontrolled price surges,” he said.
He pointed out that January’s 1.7% consumer price increase and 1.8% for the whole of 2024 indicate that current inflation remains below the long term 20-year average of 2.2%.
“Depending on the quantum and frequency of price adjustment in RON95 prices, the projected rise in consumer price index is estimated at between 0.2 and 0.4 percentage points,” said Yeah.
He said a targeted subsidy system is important to protect low and middle income groups.
“Fuel subsidies are wasteful and unproductive from a resource allocative efficiency point of view.
“These could have been deployed for expenses that have greater multiplier effects such as investment in public transportation, education, skills upgrading and healthcare.
“It would be a challenge to convince consumers to sacrifice an immediate price relief for long term benefits like better healthcare and transportation that benefit everyone but are not immediately or directly felt,” said Yeah.
Economist Datuk Dr Madeline Berma of Institut Masa Depan Malaysia called for efforts to increase incomes instead of giving out subsidies.
“Spending RM20bil in subsidies to control the rise in cost of living is not a wise move. The best way is to increase the incomes of workers.
“Subsidies must be targeted. It is important to carefully classify income categories to avoid misallocation.
“Even such a large sum will only be able to mitigate the increase in cost of living for only a short period. In the long term, this will give rise to inflation.
“The problem in transparent disbursement lies with the identification of qualified recipients.
“Until such a database exists, it will be a case of ‘those who are qualified to receive subsidies do not receive while those who are not qualified receive subsidies’,” said Madeline.
Last year, the Economy Ministry set up the Central Database Hub (Padu) to implement targeted subsidies.
Padu, which cost the government RM85mil, was supposed to go live in January, but still remains dormant.
Social and Economic Research Initiative managing director Rashaad Ali said subsidies will temper the worst of inflationary pressure on cost of living.
“The government should move away from price control methods and more towards targeted assistance, whether in the form of cash assistance or negative tax.
“The expanded Malaysian middle class, too, requires more attention as they consistently fall outside the scope of policy considerations, while feeling the pinch of higher costs of living.”
Federation of Malaysian Consumers Associations vice-president and legal adviser Datuk Indrani Thuraisingham said it is vital to prioritise certain segments of society to control the increasing cost of living.
“When you talk about vulnerable groups, it’s not just the B40. Sometimes it’s also the middle-income class.
“There must be mechanisms in place to ensure the right people benefit. Subsidies should not only be for food items but also for healthcare products and hygiene items like sanitary pads and diapers.
“It could also apply to utilities as there have been widely reported issues with access to water and electricity for low-income groups.
“There’s not much monitoring of government initiatives and their impact on the community.
“If you have that data, you can make well-informed, effective changes,” said Indrani.
