Targeted subsidy policy won’t impact high-income group – T20 able to afford it, say economic experts

The government’s plans to remove the current blanket subsidy and replace it with a targeted subsidy policy – which will begin with diesel and electricity, and later expanded to RON 95 petrol – should not be viewed negatively by those in the higher-income group, say a number of economists.

As the New Straits Times reports, these academic experts say that the move to preclude high-income earners from subsidies shouldn’t be seen as punishment by those in the tier as they could afford it.

“I don’t think the government’s move is to punish the T20s. Rather, it is in the nation’s interest to ensure a better wealth distribution among the population and to ensure that the government subsidies won’t be a growing financial burden as it is currently,” Universiti Kuala Lumpur’s business school associate professor Aimi Zulhazmi Abdul Rashid said.

“The targeted subsidy policy should be implemented to those who really need it and should not be abused, like what is happening now when subsidised diesel fuel is being smuggled to neighbouring countries,” he added.

However, he said that the classification of T20, M40 and B40 to depict income groups was too broad, and needed to be replaced with a more accurate, practical and focused approach.

“Income brackets need to measure the actual net disposable income for every household to reflect more accurately. The classification of the income group must also be revisited as differences in locations like rural and urban have high disparities in household income,” he explained, adding that the approach of doing away with subsidies could lead to those in high-income groups not declaring their earnings.

“T20 being the highest income generator to the nation’s economy will face the real economic reality once all subsidies are withdrawn from them, which will lead to top earners not declaring their income, as what has happened in the Scandinavian countries. To a certain extent it will encourage proxies, thus a better data collection with real time will be critical to implement the changes that will be introduced by the government,” Aimi said.

Targeted subsidy policy won’t impact high-income group – T20 able to afford it, say economic experts

Meanwhile, Putra Business School associate professor Ahmed Razman Abdul Latif said those in the T20 income bracket would not be severely impacted if they no longer received any subsidies.

“The T20 can bear the higher cost of products and services if they are no longer eligible for subsidies as this group managed to recover the fastest in terms of their income and wealth after the pandemic. The tax rate imposed on them is also considered low as compared to other countries and therefore, they can afford such removal of subsidies,” he stated.

Razman agreed that the approach to remove subsidies from the high-income group was not an act of punishment by the government. “It’s not an act of punishment (to the T20 income group), but it is to reduce the wealth and income inequality among and between the groups,” he told the publication.

Targeted subsidy policy won’t impact high-income group – T20 able to afford it, say economic experts

University Tunku Abdul Rahman economic expert Wong Chin Yoong was also on the same page regarding the topic, but said the move to remove subsidies should be done gradually and with assistance, as adjustment would take time.

Like Aimi, Wong cautioned that using T20 as a determining threshold was too ad hoc and could be counter-productive. “Who can argue convincingly that earning RM12,000 per month for a household with another three dependents can be considered as living a good life, if all the subsidies are eliminated? One should acknowledge the fact that T1 and T2 earning powers are very different,” he said.

As determined by the department of statistics Malaysia, T20 represents the top-tier households where the monthly income is higher than RM10,959. The category is further classified into two sub-groups, which are T1 and T2, where T1 represents households with an average monthly income of RM12,586, while T2 represents households with an average monthly income of RM24,293.

Of course, it remains to be seen how much the targeted policy will impact things down the line, and how the government will limit the effects of the inevitable, expected rise in the price of goods and services, which will surely come about and impact all income groups, including the M40 and B40. In any case, what do you think of the experts’ opinions? Share your thoughts with us in the comments section.