PUTRAJAYA has to quickly find a targeted subsidy method if it wants to quickly address the burgeoning subsidy bill, economists saod.

Speaking to The Malaysian Insight, they suggested the government start with the easiest initiative first, RON95 petrol.

They added that other subsidies for cooking oil, egg and chicken can be implemented once they manage to handle the RON95 subsidy.

In December last year, Economy Minister Rafizi Ramli said the government will introduce a new mechanism for targeted subsidies soon, possibly by this year.

“After three cabinet meetings, it is quite obvious that we have to expedite a proper roll-out of an index-based targeted subsidy system,” Rafizi said during a press conference at the Economic Planning Unit (EPU) office in Putrajaya.

“I think it will be very soon, in a matter of months, rather than years. We will have to decide to implement it in 2023,” he said.

Rafizi also said the introduction of targeted subsidies was out of “sheer economic necessity”.

Prof Dr Barjoyai Bardai said that Putrajaya can start the targeted subsidy programme with fuel as other items are harder to implement.

“This subsidy programme has been mentioned for many years but its implementation has not been forthcoming because the government is looking for a perfect solution.”

“I suggest they start small, with the easiest being a petrol subsidy. Each petrol station can provide two to three pumps at stations for vehicles below 1,000cc for RON95.

“Those with higher engine capacity can be charged RM2.30 per litre instead of RM2.05,” said the academic.

He added that the government can save up to RM20 billion if they can implement the idea.

“Current subsidies for fuel is RM75 billion per year. If they can implement (targeted subsidy) for those in need, we can save up to RM20 billion.”

“The lower income group does not spend that much on petrol. They spend about RM10 billion a year,” he added.

The academic from University Tun Abdul Razak then said other subsidies can be started within a year after the fuel programme.

“After a year, we can do it with other subsidy programmes. Let’s start with fuel first because it is the easiest compared to eggs, cooking oil or chicken,” he said.

In June last year, the Finance Ministry said the government’s projected subsidy expenditure was RM77.3 billion – the highest ever borne by the government.

The projected consumption subsidy covers petrol, diesel and liquefied petroleum gas (RM37.3 billion), cooking oil (RM4billion), flour and electricity, as well as utility bills (RM9.7billion).

Assoc Prof Dr Ahmed Razman Abdul Latiff said the government can use the existing MySejahtera app to identify the B40 group so that the targeted subsidy programme is not misused.

The senior lecturer at the Putra Business School said the government can also use the Inland Revenue Board or other government financial assistance programmes to identify the B40 group.

“Fuel is the most realistic at the moment because we can use existing mechanisms to identify the income group. 

“As for cooking oil, chicken or eggs, it will take some time because it involves distributors, traders, supermarkets and other relevant stakeholders.”

“How will Putrajaya ensure it reaches the poor in rural areas? It is better to start with petrol. If it is a success, the government can think of other alternatives,” said Razman.

Last year, Domestic Trade and Cost of Living Minister Salahuddin Ayub said the ministry could identify recipients for RON95 subsidies, for example, based on the engine capacity of their vehicles.

This came after Anwar gave a two-week deadline to all relevant ministries last month to devise a new targeted subsidy mechanism for the B40 and M40 income groups, as well as small businesses. –  February 17, 2023.