Now is not the right time to implement targeted subsidy, no need in future if oil price is low – Zafrul


For some time now, Malaysians have been told that targeted subsidies are the way to go and that this more efficient method of subsidy (compared to the current general form) will happen sooner rather than later, as the government prepares the mechanism. When exactly?

Finance Minister Datuk Seri Tengku Zafrul Abdul Aziz stressed that now is not the right time to introduce targeted subsidies as the country’s economy is still in the recovery phase while inflation remains low. compared to other countries.

“What we don’t want is to have targeted subsidies, but the execution is not right. The implementation approach of the targeted gasoline subsidy is also being revised,” he said on the sidelines of the Wild Digital SEA 2022 event in KL yesterday, reported by Bernama.

So it won’t happen “now” but “soon”? Not necessarily. “However, (in the future) this (implementation of subsidies) will also depend on the economic situation and crude oil prices. If the (market) price of oil at that time is low, it there may not be a need for a targeted subsidy because the government can continue to provide the subsidy,” said the senator and former banker.

Tengku Zafrul also said that the additional RM25 billion dividend recently announced by Petronas will be used for government spending and subsidies. The latter is expected to reach RM80 billion this year.

This comes as analysts predict that Malaysian motorists will soon pay market price for petrol and diesel RON 95 as there is a strong possibility that targeted subsidies will be implemented next year.

“We expect higher prices for gasoline and diesel RON 95 next year with the revision of the fuel subsidy. We understand that the test of the targeted subsidy mechanism started last month and will continue for three to six months. Therefore, we anticipate that the fuel subsidy will be reviewed again next year as part of the Budget 2023 program, which is scheduled for October 7,” Maybank Investment Bank said in a research note. last month.

In July, Tengku Zafrul said that the T20 group, which represents the top 20% in the country, receives some RM8 billion in fuel subsidies, compared to RM6 billion received by the bottom 40% (B40 ).

He was repeating what he said in May that Malaysia’s wealthy enjoy the lion’s share of government subsidies. “For every RM1 of fuel subsidy, 53 cents goes to the T20, while 15 cents benefits the B40. So, for example, if this year’s subsidy bill is expected to exceed RM30 billion, more than RM15 billion is subsidy in T20,” the minister said at the time.

If you are wondering why, rich people have more cars, their cars use more fuel and have bigger fuel tanks. It’s that simple. While the need for a targeted subsidy is clear, finding a good way to implement a system that will benefit intended beneficiaries with minimal leakage and that is universal is much more difficult.

In July, Tengku Zafrul, in a written parliamentary response, said a targeted grant mechanism was being tested. “The (initial) tests will be followed by more extensive tests,” he said, adding that the government wanted to make sure the mechanism was feasible in urban and rural areas.

“It (testing) is expected to take three to six months before the new system is implemented nationwide,” he said, adding that the implementation of the targeted fuel subsidy mechanism will be implemented in stages to ensure that it does not cause inflation or affect economic growth.

So we won’t have to pay market price for petrol “now” (RON 97 is currently going for RM4.30 per litre) but when does anyone guess. As is always the case in Malaysia, political factors also come into play and a general election must be called by September 2023.


About Author

Comments are closed.