Government implements targeted fuel subsidy for B40 to replace current blanket, matter of time – Mustapa

Rising crude oil prices are making Malaysia’s current synthetic fuel subsidy – which includes RON 95 petrol at RM2.05 per liter – unsustainable. Although we are an oil producing country and incomes increase as global oil prices rise, the size of the subsidy bill every US$1 increase in crude oil price takes RM104 million from the nation’s coffers.

Further target approach Fuel subsidies will continue to increase the impact for those in need, while also reducing utility bills. It’s no secret that the government is looking to replace the current blanket style – ‘targeting’ has been mentioned beforeand is currently being reiterated by Prime Minister (Economics) Datuk Seri Mustapa Mohamed.

Veteran minister Tok Pa said the government is still working on a suitable structure and hopes it will be completed soon. For now, subsidized RON95 gasoline and diesel prices will remain, but he made it clear that the system will be changed – it’s just a matter of time.

“Those who can afford it should pay more and those who don’t deserve it (subsidized) should not be subsidized at all. Subsidies for the poor, especially group B40 (lowest 40% income group). The point is when it will be done,” said Mustapa Bernama TV today.

He said that fuel subsidies have played an important role in curbing inflation in Malaysia and that the government has been able to sustain a price increase of 2% to 3% over the past 10 to 20 years. “However, it will be a major strain on the budget. When we outlined our budget last year, estimated RM5 billion subsidy. It is now estimated at RM30 billion, a sixfold increase in the amount of the subsidy,” he said.

So, if the blanket is given way to the target, what would be a good way to implement a fuel subsidy that benefits the intended recipients, with minimal leakage? More on high crude oil prices and fuel subsidies topics here.