Savings from the removal of blanket subsidies for fuel is expected to help Malaysia narrow its budget deficit and avoid going for “too many taxes,” while cash transfers will be on its way to help households manage inflation.
Economy Minister Rafizi Ramli said the successful implementation of the targeted subsidy programme will put Malaysia in a much stronger position fiscally as the government expects to save at least RM 4.68 billion a year from this move. With more breathing space, the government can avoid “jumping on the taxes bandwagon too carelessly,” Rafizi said in an interview with Bloomberg recently.
The removal of the blanketed fuel subsidy that has been implemented for many decades in Malaysia is said to be the key factor in the fiscal consolidation effort of the current government’s administration.
“We should be able to meet the 5 percent (of gross domestic product, GDP) budget deficit target that was set for 2023. The plan is to bring it down further to 4.6 percent for lower. With subsidy rationalisation, going full swing in 2024, hopefully then we will be able to consolidate it even further in 2025 to meet our 3.5 percent target,” Rafizi explained.
When asked about mitigation efforts to minimise the impact of inflation, Rafizi said there will be some form of cash transfers to families. “At least 80 percent of the households will benefit, one way or another, from different kinds of cash transfers, when we move towards targeted subsidies. Obviously, the move will have some inflationary impact,” he added.
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PADU, an integrated database that allows information sharing between various government arms including LHDN and JPJ, will be utilised in both efforts – the designing of targeted fuel subsidy as well as cash transfers recipients.
The implementation of targeted fuel subsidy could begin as early as the second quarter of 2024.
Also read: Anwar: “How much cheaper can we go?” - Expect fuel price hike in Malaysia, subsidy reform soon