THE government faces a major political backlash if the distribution of fuel subsidies through a proposed new mechanism does not meet its target group, economists have said.

They warned that consumers will have to bear the brunt of the costs if businesses, no longer qualify for bulk subsidies, raise the prices of goods and services.

There are also those who see providing targeted subsidies as unreasonable because fuel subsidies are needed by consumers at every level.

The warning comes as the government is expected to announce a targeted subsidy mechanism for petrol and diesel as early as this month to replace bulk subsidies.

Universiti Putra Malaysia researcher, Ahmad Razman Abdul Latif, told The Malaysian Insight that businesses that no longer qualify for fuel subsidies will certainly raise prices.

“If we look at it, it does help in terms of saving transport costs, but the traders will not be able to get subsidies after this.

“What we fear will be an increase in the price of goods and services due to the increase in operating costs.

“That’s why we don’t want a situation where the B40 group wins in getting the RON95 but loses from another angle,” the economist said.

Therefore, targeted subsidies need to be extended to the M40 group, which is also affected by the increase in the cost of living, he said.

If not, he is worried that the Pakatan Harapan (PH) administration will face resistance from the people.

Starting in 2006, when RON95 petrol rose sharply to RM2.70/litre, there have been a series of massive demonstrations against fuel prices.

At that time, the demonstration was led by Anwar’s PKR party, which demanded that subsidies be maintained to guarantee the welfare of the poor.

Subsequently only two fuel classes – RON 95 and diesel – are subsidised, while RON97 is not.

The government then floated oil prices at the end of 2014 for RON95 and diesel when world crude oil prices were lower than retail sales.

PH offered to implement targeted subsidies in the run-up to the 2018 general election, but failed to implement them during its 22 months in office.

Fresh efforts to do so, this time during Muhyiddin Yassin’s brief stint as prime minister, started when Tengku Zafrul Abdul Aziz was appointed finance minister.

As of July last year, Tengku Zafrul was reported to have witnessed the subsidy payment test which he said would take six months before it could be implemented.

Efforts to formulate targeted subsidies are now handled by the National Livelihood Action Council (Naccol), which was formed by Anwar as soon as he was appointed prime minister last November.

Anwar last week gave Naccol 14 days to examine the implications of the fuel subsidy.

Targeted subsidies for electricity were announced in December through tariff hikes for giant companies and maintaining subsidies for household consumers and small businesses.

A new subsidy mechanism for RON95 and diesel is expected to be announced during the tabling of Budget 2023 next month.

Analysts such as Razman expect it to be the most appropriate period to announce the budget because it involves large financial implications.

“Targeted subsidies involve large allocations and with the expectation that next year’s subsidy will involve a higher amount, it is appropriate that it be announced during the 2023 Budget,” he said.

He expects subsidies on RON95 and diesel to be a priority based on several statements issued by government agencies recently.

Among them, a report by the Ministry of Finance last year, which mentioned that the T20 high-income group benefited from petroleum subsidies of RM8 billion, he said.

Another economist, Barjoyai Bardai, also believed the government should immediately announce the targeted fuel subsidy during the re-presentation of the 2023 Budget.

At the same time, the emeritus professor at Tun Abdul Razak University suggested that targeted subsidies be channelled in the form of cash assistance directly to the target group.

“If we have data, we will use macro data that can see household groups of income and their expenses. We can determine the need for subsidies.

“For example, each household is given RM500 for income less than RM3,000 and can be deposited in their bank account. That way is easier,” he said.

Universiti Teknologi Malaysia UTM political analyst Mazlan Ali said targeting subsidies for RON95 was impractical because oil subsidies had to be extended to all parties.

He advocated that the implementation be similar to the distribution of electricity subsidies - by excluding petrol subsidies to the heavy industry sector.

“For me that sector should not be subsidised. If the others just continue,” he said.

Mazlan also referred to PH’s original 2018 manifesto to distribute petroleum subsidies according to vehicle capacity.

The move does not make sense because the ability of the vehicle according to the engine’s capacity does not reflect the wealth of an individual, he said.

The government earlier this week explained that the targeted subsidy recipients will be determined with an integrated and comprehensive database involving various agencies.

Among others, it involves data from the National Bank, the Inland Revenue Board, the Malaysian Statistics Department, the National Treasury and the Road Transport Department. – January 2, 2023.