That the Russian invasion of Ukraine is having a profound impact is undeniable, and it’s not just from aspects of the immediate strife. Oil prices have also spiked as a result of the crisis, having gone past the US$120 per barrel mark, and it is this increase that raises the question – is there a possibility of a readjustment of the fuel subsidy in Malaysia, given the rising pressure the increase is putting on government finances?
As The Star reports, rising oil prices are generally positive for a net oil and gas exporting country like Malaysia. According to a CGS-CIMB Research report, it is estimated that for every US$1 (RM4.18) per barrel average increase in oil prices, the government stands to add some RM370 million in revenue.
However, given that the country has a fuel subsidy mechanism in place, that same US$1 per barrel increase will set the government back by around RM780 million in fuel subsidies, based on the price of RON 95 and diesel remaining unchanged at their ceiling price of RM2.05 per litre and RM2.15 per litre respectively. To give an idea of how much subsidy is in place, RON 97 is currently priced at RM3.45 per litre this week.
The research house said that the government starts incurring fuel subsidy costs when oil prices hit the US$55-US$60 per barrel mark, and that on a net basis – based on the assumption that retail fuel prices of RON 95 and diesel remain unchanged – estimated that the government would lose RM410 million in net income for every US$1 increase in Brent oil above the US$60 per barrel level.
It added that the rising oil prices raise several questions, the most notable of which is if the government will raise domestic fuel prices. The government would have to balance the pros and cons of doing so, as a hike in fuel prices will have a significant negative impact on the economy, particularly in increasing inflation as well as bringing about a reduction in disposable income and consumption growth.
Therefore, any decision by the government to adjust fuel subsidy would have to go beyond fiscal factors, taking economic, political and social impact into consideration. Additionally, the research house said the fiscal balance would be worse if other subsidies – for liquefied petroleum gas and cooking oil – are also taken into account. The government has kept the prices of these unchanged despite a sharp price increase in the global market, it said.
Nonetheless, CGS-CIMB Research believed the government can withstand rising spending as elevated oil prices would also mean that it can demand higher dividend payment from Petronas, which would essentially allow the government to keep the subsidy afloat. Also, the one-off windfall tax announced under Budget 2022 – which is projected to yield RM6.2bil for government coffers this year – could offset the impact of higher oil prices.
The research house said that an alternative to reducing subsidies while minimising the impact on consumption would be to introduce the use of cash handouts. In 2008, the government announced a RM625 cash subsidy, but only as a one-time payment.
Then, in 2019, the Pakatan government announced plans to introduce a petrol subsidy programme (PSP). The scheme, which was to see eligible B40 (and later, M40) recipients being given a fixed subsidy rate of RM30 a month for car owners, and RM12 for motorcycle owners, never went through, being canned in July 2020.
A note on subsidies and the cost it has incurred in recent times. In 2019, the government spent RM6.32 billion in subsidies, but this dropped to RM2.16 billion in 2020. The reduced spending was due to global crude oil prices falling significantly as a result of an “oil war” among oil-producing countries, which saw the barrel price dropping below US$20 at one point in April 2020. Pump prices fell to RM1.25 a litre for RON 95 and RM1.46 for diesel that month, although the MCO meant motorists couldn’t take advantage of the cheap fuel.
In June of last year, finance minister Datuk Seri Tengku Zafrul Abdul Aziz said an additional RM4.22 billion was expected to be spent in 2021 on fuel subsidies as a result of the increase in global oil prices. At that point, he said that government had allocated RM3.78 billion in subsidies, but was expected to accommodate subsidies of up to RM8 billion due to the increase, RM4.22 billion higher than the original allocation.
What do you think? Should fuel subsidies remain as they are, or should the government start weaning the rakyat off it? If so, how would it accomplish the task with the minimum negative impact? Share your thoughts with us in the comments section.
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This is something that only Malaysian government can understand… Crude oil drop, we loose money, crude oil up we also loose money… Or behind there is some special contract like our highways? Loose hope la really
This is the right time to reduce 50% FROM… current car tax (10-30%) and excise duty (65-105%) TO… become car tax (5-15%) and excise duty (30-50%). and petrol subsidy reduction at the same time.
Dont follow the kurang cerdik previos plan, NEW BN SET NEW TAX STRUCTURE, correct what have been done WRONGLY decades ago…
Loose money don’t care as long as rakyat are not burdened with sorhai fuel prices. Taking care of rakyat is #1. #BetterNation #KeluargaMalaysia
Crude oil down u loose money, up u also loose money. When can u start making money besides milking the Rakyat
Subsidising rakyat is national service and national service is not about making money from rakyat.
confirm, after election, ron95 mesti naik RM3.00 seliter..
car dependent Malaysia …
Remember petrol was jacked up to rm2.70 by Badawi?
All hell broke loose..from bas sekolahs to cabs to all sectors.
Within a short spell,Pak Lah’s gung ho new petrol price retreated.
The rakyat is hammered left right centre by covid..increase price some more ,meh? Some more GE 15 not far away ,wor.
Sweeteners are better for GE 15 ,than bitter gourd juice.
Yeah remembered that and he keeps on telling us no there is no petrol price increase no price increase until Boom Nah price increase for ya.
But do take note that the Rm2.70 was for RON97 (as the RON95 haven’t existed yet) and the World Oil price was USD$145 even though with subsidy.
Badawi era, RON97 reached RM2.70/L
Pakatan era, RON95 reached RM2.90/L
Which was worse?
..and the prices that went up didn’t come down when the petrol price went down…
Remove bulk subsidy, but implement targeted subsidy directly to driver account (B40 & M40).
So.. cheap or free gas for people with no cars?
That the government knows how to benefit the rakyat with all the savings we get from abolishing fuel subsidy.
With the current breed of politician that only care about their own well-being and their next of kin, and bickering over topic like how to sap your retirement money instead of actually fixing the systemic issue, raising wages, improve business climax so that the rakyat move out of middle-income grotto, the brain drain, etc.
We are frankly giving them too much credit. I think it’s probably better to stick with the fuel subsidy and let them bicker about topics that only they cared about to further their own agenda.
Don’t worry. “Tidak ada satu sen pun wang rakyat digunakan untuk bayar subsidi.”
Which is true. It is Petronas money used to pay subsidi.
Russian bastards…
Dear government, about time to realize you SHOULD INCLUDE HYBRIDS in the tax exemption and reduce the amount of subsidies as a reminder to the people that fuel is not some cheap utilities that can be use in a wasteful way, we should be mindful of its usage.
Is not because of russian invasion of Ukraine caused increase to oil prices. The oil prices increase due to section that western put on russia.
Which won’t be there if Russia did not invade a sovereign nation
Which wont be there if the West did not trigger it
Blame Nazi Germans should had execute this Putin’s ancestor… this would not happened
Time for the Allies to use Chronosphere and go change history by helping Nazis instead. Heil Hydra!
has the drums being sounded? the drummings about cost and price going up?
haha
Not really as RON95 still remain same as usual. This unlike during Pakatan era when RON95 was reaching RM 3.00 a liter.
Malaysia is a petroleum producing country. When Petronas sells the petroleum products to other consuming countries, it can raise prices to make better profit returns. There is no justification to raise prices for local consumption. Prices for local consumption would already have included reasonable production costs that are stable, irrespective of selling prices for other consuming countries.
We are an oil producing country but we are also an oil consuming country. Fuel consumption is going up while production is finite as fossil fuels are not renewable. Subsidies are there to keep prices down but the margin gap between those we sold and those we use is getting thinner and thinner, someday we might even be paying more for consumption than we produce & sell.
Advanced economies should not have ANY subsidies on fossil fuels, it’s utterly ridiculous. Should be scrapped ASAP…
Learn not to waste energy, especially petroleum-based…
Increase road tax for luxury car and car which cc more than 1.5l. Govt grant monthly subsidy for those whose total family income of rm5,000 and less monthly having car at rm60 mothly, and motorcycle rm20 monthly. Govt may stop fuel subsidy as it really benefit the rich