KUALA LUMPUR – The government remains focused on implementing targeted diesel subsidies before making any announcements about RON95 petrol rationalisation, according to Treasury secretary-general Datuk Johan Mahmood Merican.
Johan reaffirmed Putrajaya’s attention to diesel, despite hints from Economy Minister Rafizi Ramli about potential changes soon.
“This focus is necessary to ensure the stability of diesel subsidies before taking further steps,” Johan told Scoop, in response to Rafizi’s remark.
Johan noted that as of June 19, 100,000 Budi Madani applications for diesel subsidies have been approved.
It is estimated that 300,000 individual private diesel vehicle owners in Peninsular Malaysia are eligible for Budi Individu, while nearly 400,000 small-scale farmers and planters qualify for Budi Agri-Komoditi.
He also urged those who are eligible for the targeted subsidies to apply through the official Budi Madani website.
In a recent Bloomberg interview, Rafizi said that the government might introduce targeted petrol subsidies in a “surprise” move.
“We will keep our cards close to our chests as we did with the targeted diesel subsidies, and I think everyone is up for another surprise,” Rafizi quipped.
However, Prime Minister Datuk Seri Anwar Ibrahim said on June 29 that no decisions have been made regarding RON95 subsidy rationalisation. Anwar said that the government is currently focusing on targeted diesel subsidies and that affected citizens can appeal for subsidy assistance.
According to Bernama, the prime minister also noted that Rafizi had mentioned the government’s current focus on targeted diesel subsidies. Anwar said citizens who feel affected by the move can appeal for subsidy assistance.
Be wary of panic buying, say economists
Meanwhile, economists suggested that Putrajaya give the public advance notice if it intends to remove blanket subsidies for RON95, and they made recommendations on how the impending rationalisation could be implemented so that the public can adjust to the changes.
Global Asia Consulting senior consultant Samirul Ariff Othman cautioned the government that a repeat of the approach used during its announcement on diesel subsidy rationalisation might cause mass panic and confusion. He advocated for a “quantum-based” notice.
The former senior researcher with the Malaysian Institute of Economic Research (MIER) also expressed concern that a hastily made announcement on targeted RON95 subsidies could cause a “disordered transition” among consumers.
“(The notice) should depend on the quantum (of the floated fuel price). People like to plan, and a big increment (to their spending) will be meaningful while inconsequential minor increases can be absorbed by businesses,” he told Scoop.
“If not, the additional costs would be passed down to consumers, potentially leading to inflation as a 10% increase in the retail price of RON95 is estimated to contribute around 0.5 percentage points to headline inflation.
“The government must balance economic efficiency with social welfare to avoid significant disruptions, especially considering that, compared to diesel, RON95 is more widely used in motor vehicles and (related policies) will affect a larger portion of the population,” he said.
Samirul added that a phased and gradual approach, unlike the tactic employed for the diesel subsidy rationalisation, can help citizens adjust over time and reduce the shock to household budgets.
“By implementing targeted programmes and carefully timing the subsidy rationalisation, Malaysia can effectively manage resources while protecting its citizens from undue financial strain.”
Meanwhile, Centre for Market Education chief executive officer Carmelo Ferlito opined that while he commiserates with the public’s call for proper information regarding subsidy rationalisation, prior notices could potentially cause panic buying by consumers.
“What can probably be done is for the government to detail early and clear information on the mechanism (for targeted petrol subsidies) itself, such as how to secure exemptions or vouchers and so on, without revealing the date (of the policy taking effect),” he said.
This will ensure that the people know what to do whenever blanket RON95 subsidies are removed, as they have been adequately informed about the details involved with the system, the economist told Scoop.
However, he also pointed out that since essential goods like fuel tend to be “inelastic” in the sense that regardless of how much their price is hiked, demand normally remains stable, it is vital to also consider the urban mobility aspect of the issue to reduce consumers’ financial burdens.
“No matter how gradually (it is implemented), subsidy rationalisation will impact transport prices, which is why it’s important that such structural reforms are coupled with more general reforms aimed at strengthening public transportation.
“Vouchers or cash-aids can only temporarily support people affected by price increases, and they also represent the government’s financial disbursement, which may have inflationary effects. It’s crucial to provide people with alternative modes of transportation,” he added.
Conceding that transportation investments could be deemed a costly exercise, Ferlito posited that mega infrastructure projects can be economically sustainable if the process is not funded by the government.
He referenced the Entrepreneur Rail Model, which suggests a development model fully funded by private capital and based on land value creation, while the government holds the role of ensuring land acquisition and defining regulatory frameworks.
“The model could help Malaysia reshape its urban and extra-urban transportation landscape, creating opportunities for development in areas that are currently underdeveloped while creating profit opportunities without harming the government’s purses,” he said.
“An adoption of the model would not only bring about the development of an urban mobility system that is financially and environmentally sustainable. It could also offer a solid and affordable alternative to commuters affected by subsidy rationalisation.” – June 30, 2024