Economy Minister Mustapa Mohamed Speaks On Targeted Subsidies, Inflation

The Malaysian government is currently in the midst of working out a targeted solution to replace the blanket subsidies over fuel and cooking oil, said our Economy Minister.

During an interview with Bloomberg, Mustapa covered a fairly broad topics from the economy in general to inflation while also simultaneously confirming and shedding light on the ongoing work to introduce a targeted subsidy solution.

Targeted fuel subsidy - a solution?

The main cause of all this is the increasingly high price of crude oil that, due to the aforementioned blanket subsidies to cap RON95 at RM2.05/litre, has dramatically increased government spending to curb a disruptive impact on the cost of living.

Though it is a bitter truth to accept, the Malaysian government can no longer afford to maintain such a low ceiling on petrol when the market price has spiked significantly higher. As of the time of this writing, RON97 has hit RM4.72/litre.

In relation to this, Finance Minister Tengku Zafrul Aziz estimated that the country would have to fork out RM28 billion should the blanket subsidies stay in place. We’ll merely add that earlier in June, Petronas reported a Q1 2022 profit of RM23.44 billion after tax.

Back to the interview, Mustapa expressed a sense of urgency that the sooner the new targeted subsidy policy can be finalised, ratified, and implemented, the sooner it “will relieve pressure on the government’s budget” while ensuring “those who need subsidies, will get subsidies.”

Over RM71 Billion In Total Govt Subsidies?

On Monday, this sentiment was echoed by Prime Minister Ismail Sabri Yaakob who said that the final subsidy bill for 2022 could exceed RM71 billion if left unchecked.

To those following the unfolding of this expedited shift away from blanket subsidies (which is inherently flawed, we’ll admit), it has been obvious that the main hurdle facing the targeted subsidy plan is a technological and informational one.

In terms of information, there is no consistent or accurate way to ascertain an individual’s ‘need’ for subsidies, if at all, due to there being so many factors that could influence a person’s spending power. Simply grouping Malaysians based on income (such as the T20, M40, B40 tiering) would not take into account their lifestyle, dependencies, or situational requirements since it reveals only one part of their overall financial situation.

How will targeted subsidies work?

Still, should that be resolved, it would also be a pretty massive technological undertaking to implement a system (and quickly) whereby those found to be eligible for subsidised fuel could access it at all petrol stations while keeping those ineligible away.

The capacity for Malaysians - even Singaporeans - to find ways to unscrupulously cut corners to save some money knows no bounds, so it might not be long before the subsidies are exploited.

• Might we need to verify our eligibility via our MyKad?
• Could eligible Malaysians be issued a special ‘Fuel Card’?
• Will the subsidies be tied to our vehicle registration/plate number?
• Does the value of the car we drive matter?
• Do we have to present our tax returns or pay slip to the petrol station counter?

In any case, we reckon the security of any of these targeted subsidy verification solutions (plausible or otherwise) isn’t exactly air-tight, at that point, the problem then falls onto enforcement, which could be an even more difficult (and ongoing) problem.