The floating of RON 95 petrol and diesel prices in Malaysia could save the government RM29 billion in fuel subsidies, however this would mean prices of fuels at the pump will increase by 64% for RON 95 petrol and 61% for diesel fuels according to Hong Leong Investment Bank (HLIB), reported Business Times.
Subsidised fuels, which are RON 95 petrol and Euro 5 B10 and B20 diesel fuels, continue to be priced at RM2.05 and RM2.15 per litre respectively, which are unchanged since the end of September 2023. According to HLIB, subsidy reforms are even more crucial now given the absence of goods and services tax (GST) if the fiscal deficit target in the 12th Malaysian Plan mid-term review is to be achieved, the report wrote.
“We envision this to entail floating fuel to market prices and concurrently, dishing out cash aid to those that Pangkalan Data Utama (PADU) has identified as target groups. A ‘fuel float’ move would help reduce the fiscal deficit but put upward pressure on inflation,” according to HLIB.
Subsidies and social assistance in Malaysia has almost tripled from RM23 billion in 2010 to an estimated RM64 billion last year, peaking at RM67 billion in 2022, Business Times wrote. Putrajaya spent RM55 billion on subsidies in 2022, according to the Auditor-General’s Report 2022, of which the largest portion, 82% was from petroleum products, mainly RON 95 petrol and diesel, the report continued.
“Artificial lowering of fuel prices via subsidies has driven Malaysia’s per capita gasoline consumption and transport emissions to be the highest in ASEAN (excluding Brunei),” the HLIB report added.
The Business Times also noted that the current fuel subsidy structure is not reaching its intended target, as the T20 income demographic enjoy the subsidised RON 95 petrol, compared to just 24% of the B40 income demographic.
Implementing a price ceiling for fuels below their true market price also leads to the problem of fuel smuggling, which is particularly rampant for diesel, causing a leakage of subsidy funds, the HLIB report wrote.
Last November, economy minister Rafizi Ramli announced that a targeted subsidy mechanism is set to be introduced by the Malaysian government in the second half of 2024.
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AI-generated Summary ✨
Comments express strong opinions on Malaysia's fuel subsidy removal, citing potential benefits like reduced corruption, smuggling, and leakage, along with environmental gains. Many argue subsidy benefits the wealthy and fuel smuggling syndicates, advocating for targeted subsidies or floating prices. Some feel the policy may cause inflation and hardship for B40 and M40 groups, while a few sarcastically suggest alternative solutions or criticize government corruption. Overall, sentiments are mixed, with concerns over economic impact and calls for transparency and reform.