MALAYSIA’s long standing subsidy system is no longer workable, financial experts said.

They said it is time that Malaysia adopts a targeted subsidy system the likes of Singapore that will benefit low income groups.

This will help alleviate the government’s financial burden, they added.

Financial expert Koong Lin Loong said it is time to scrap the current subsidy system.

“The current subsidy package is too general. This means no matter which income group you belong to, you will benefit from it,” Koong told The Malaysian Insight.

He suggested that Malaysia follow the Singapore model to target low income groups.

“The government should provide cash assistance or vouchers to these groups to help them buy daily necessities.”

“Like for fuel, the government heavily subsidises this, but many low income people don’t drive, so it is a waste.”

Finance Minister Tengku Zafrul Abdul Aziz said this week that the total amount of subsidies is expected to reach almost RM77.3 billion this year, which is the largest sum in history.

The subsidies for essential supplies took up two-thirds of the RM77.3 billion in total, covering the prices of petrol, diesel, cooking oil, flour, electricity and other necessities.

The projected total also includes RM5.8 billion in electricity subsidy for the second half of 2022, to ensure there would be no increase in the electricity tariff after July 1.

The current mechanism may also lead to leakages, Koong said.

“If we compare the subsidy paid between March this year and last year, it is 10 times the amount,” he said.

Chua Tia Guan, executive director and head of tax and financial consulting at Asia Business Centre (ABC) also agreed that the subsidy system has to be restructured to ease the government’s financial burden.

“The subsidy programme has existed since former prime minister Dr Mahathir Mohamad’s time in the 80s. This means the public do not know what the actual price of each item is.

“The sustained subsidy system also means we lose our competitive edge.”

However, given the current rate of inflation, it may not be the best time to scrap them.

“Scrapping the subsidies now will lead to hyper-inflation. It also takes at least three to five years of planning to scrap the programme.”

“We need a proper road map to execute it, it cannot be done hastily.”

Wong Chin-Yoong, professor of economics in Universiti Tunku Abdul Rahman said the existing subsidy programme has lost its focus.

“The government recently scrapped the subsidy for 2kg, 3kg and 5kg bottled cooking oil but maintained it for 1kg poly bags.”

“I agree with this approach, it has now become targeted. The cash that the government saves from paying less subsidy can now be channeled to low-income families.”

Wong said he expects the same mechanism to be applied to sugar and fuel subsidies too.

Minister in the Prime Minister’s Department (Economy) Mustapa Mohamed said recently that the government realised that the fuel subsidies on cooking oil, petrol, diesel and liquefied petroleum gas (LPG) were important to the people.

Mustapa said without the subsidy, Malaysia’s inflation for the month of May would have reached 11.4%. – July 2, 2022.