Subsidy must hit targets

IT was revealed recently that the rich are the main beneficiaries of the government’s fuel subsidy programme. Of the estimated RM4bil spent by the government on fuel subsidy between January and March this year, more than half was enjoyed by the T20 group, the richest people in the country.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said that for every RM1 spent on fuel subsidy, 53 sen went to the T20 while only 15 sen benefited the B40 or the bottom 40% of Malaysian households in terms of income.

The government is expected to fork out RM30bil in fuel subsidy this year, and this means over RM15bil would benefit the wealthiest households in the country!

This does not make sense. The wealthy do not need subsidies the way the M40 or B40 groups do.

Why should someone who drives a BMW for a family holiday in a posh beach resort enjoy the same fuel subsidy as someone who commutes to work using a beat-up motorcycle and earning minimum wages?

A few months ago, when our borders reopened, we were dismayed when we discovered that several owners of Singapore-registered vehicles were pumping RON95 at our petrol kiosks. This is because RON95 is heavily subsidised by the Malaysian government, unlike RON97.

We felt that coming from a wealthier country, these errant Singaporeans were taking advantage of the fuel subsidies meant for Malaysians.

Shouldn’t the same argument apply to Malaysians? Why should the T20 not only enjoy the fuel subsidy but also gain more from it than those earning lower incomes?

This is counter-intuitive. Isn’t the subsidy system a form of wealth distribution? If we are able to trim the amount of subsidies enjoyed by the T20, the savings would go to the B40 and M40 groups to help create a more equitable society.

I understand that the current government inherited a legacy subsidy system, and Malaysians have become so accustomed to blanket subsidies. For example, we are now enjoying among the cheapest petrol prices in the region. In Thailand, a litre of RON95 is around RM6. In Singapore, it is roughly RM9.30 while in Malaysia, it’s still fixed at RM2.05.

But any economist will tell you that prolonged subsidies are inefficient and counterproductive. The longer it stays, the harder it will be to wean Malaysians off their “subsidy addiction”.

Due to the current geopolitical tension, world oil prices hit a five-year high recently. Unfortunately, the additional revenue to the government’s coffers is being cancelled out or neutralised by petrol subsidies. And then there are also the subsidies on chicken and eggs as well as electricity tariffs.

The government’s coffers are not bottomless. There is only so much the government can give out in subsidies, especially since colossal sums have been spent over the past two years to tide the country over the Covid-19 pandemic, and the Goods and Services Tax (GST), which once provided a sizeable additional revenue to the country, was repealed in 2018.

It is time the government looked at alternatives to the current blanket subsidies to ensure a more equitable and targeted distribution of aid. The current fuel subsidy mechanism is not sustainable in the long run. It is unfair and actually puts the lower income groups at the raw end of the deal.

We must not waste any more time to come up with sustainable solutions that will help our people and the country to build long-term fiscal resilience.

ROSLI BAKAR

Muar, Johor