Gradually increasing petrol prices is the answer to reducing Malaysia’s fiscal deficit, according to Datametrics Research and Information Centre (DARE). In a report by FMT, the Malaysian-based think tank says this approach is more effective compared to introducing targeted subsidies and will allow the government to directly assist those in the lower-income groups.
DARE managing director B Pankajkumar said by increasing petrol prices to align with the market price, the government can significantly reduce its petrol subsidy, which can instead be used to provide direct cash transfers to the bottom 50% of society. “The approach involves gradually increasing petrol prices every quarter by 20 sen per litre, or to reach RM1 above the market price within the next two years,” he explained.
“That’s your answer in terms of tackling your budget deficit. Imagine the amount of savings you can make by putting petrol price back to where it should be. To me, why bother going to a different system (of targeted subsidies for petrol). It’s not proven, it takes a lot of effort, and there will be leakages,” he continued, adding that a different system would likely require the government to spend more in terms of administration.
Following yesterday’s fuel price update, RON 95 currently retails at its ceiling price of RM2.05 per litre, while the price of RON 97, which is floated according to market prices, is at RM3.47 per litre. Pankajkumar pointed out that Malaysia is listed as the country with the ninth lowest fuel price globally
“Prime minister Anwar Ibrahim mentioned Malaysia is expected to spend RM81 billion for subsidies this year. Last year’s figure was RM62 billion, of which RM45 billion was related to fuel subsidy,” Pankajkumar said.
Anwar will table Malaysia’s Budget 2024 this Friday, October 13 at 4pm, and it is expected that measures will be announced to reduce public debt by steering the economy away from decades of blanket subsidies. Do you agree with DARE’s stance on this matter? Is increasing fuel prices better than introducing targeted subsidies, or is there another way?
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