THE recent rollout of targeted diesel subsidies offers several vital lessons for the Malaysian government as it prepares for broader reforms, including those affecting the RON95 petrol subsidy and other controlled goods in the coming months. This reform has elicited both positive and negative reactions from various stakeholders.

Academics and economists have praised it as a necessary step to free up much-needed fiscal space, enabling the government to invest in critical social sectors such as healthcare and education, as well as to expand social welfare programmes and public transport. These experts also argue that any resulting inflation can still be managed and contained. However, diesel vehicle owners have expressed concerns through various media outlets, feeling unprepared for the reform as diesel prices surged by over 50 percent. They fear that the sudden increase in diesel costs will significantly impact their daily operations and overall profitability, especially for small business owners and individual contractors who rely heavily on diesel-powered vehicles.

These varied reactions highlight the government’s vulnerabilities in the 4Cs – communication, coherence, consistency, and compliance – which are critical for the success of any subsidy reform.

Communication: Crafting the narrative

Effective policy implementation hinges on clear and transparent communication. The government needs to enhance its communication efforts beyond press releases when implementing subsidies. Clear, consistent messaging is critical to ensuring public understanding and support for subsidy reforms. While the MOF and the Domestic Trade and Cost of Living Ministry have prepared clear FAQs on how Malaysians can apply for subsidised diesel under programmes like Budi Individu, Budi Agri-Komoditi, and SKDS 2.0, these efforts should also clearly explain how the RM4 billion savings from the diesel subsidy reform will translate to better socioeconomic outcomes for the ordinary Malaysian. Providing tangible examples of how savings will be reinvested can help build public support. To ensure broad understanding and engagement, collaborative public communication campaigns can be crafted by the Finance Ministry (MOF) in conjunction with the Ministry of Communications, drawing lessons from successful strategies like those used during Singapore’s GST rate adjustments. Leveraging multiple communication channels, including social media, public forums, and traditional media, can help reach diverse audiences and address their specific concerns.

Coherence: The data dilemma

Maintaining coherence across different government databases and initiatives is crucial. Questions have been raised about the government’s decision not to utilise the existing Padu database of the Ministry of Economy for the subsidy rollout, opting instead for the Budi Madani programme managed by MOF. Economy Minister Rafizi Ramli clarified that Padu contains household information, whereas Budi Madani uses individual recipient data, which is key to determining the eligibility of targeted subsidies. This distinction is important because it underscores the complexity of administering targeted subsidies and the need for accurate data to ensure fairness and efficiency. However, streamlining initiatives such as Padu and Budi Madani under a single ministry would help enhance efficiency and effectiveness in targeted subsidy implementation. Such a move would not only improve the accuracy of subsidy distribution but also reduce redundancies, administrative overhead, and potential errors. Any integration efforts between these platforms must also prioritise stringent security measures to safeguard public data. Ensuring that data is protected against breaches and misuse is paramount to maintaining public trust and the integrity of the subsidy system.

Consistency: Bridging the implementation gap

Consistency is essential for the seamless implementation of policy. For instance, some public and goods transport vehicles eligible for subsidised diesel were unable to benefit immediately when the higher diesel price took effect after midnight on June 10, as they had not yet received fleet cards from fuel retailers. This inconsistency in rollout highlights the logistical challenges involved in implementing such widespread reforms. Although the government introduced an interim cash refund mechanism for these affected users, provided they kept their receipts, this approach is bound to be inconvenient for them, especially with the application portal for refunds only set to open on July 1. This delay in providing necessary support mechanisms can lead to frustration and financial strain among affected users. Moving forward, the government could ensure all necessary tools and safeguards are in place before embarking on significant subsidy reforms. Proactive measures must precede substantial subsidy reforms to mitigate unforeseen challenges and optimise benefits for intended recipients. This might include pilot programmes, phased rollouts, and thorough stakeholder engagement to identify and address potential issues early on.

Compliance: The enforcer’s challenge

Ensuring strict adherence through robust compliance mechanisms is pivotal in policy enforcement. Following the rollout of the targeted diesel subsidy programme, vehicle towing companies and cement producers announced price hikes. These price adjustments have raised concerns about possible profiteering and the unfair burden on consumers. While the Domestic Trade and Cost of Living Ministry has issued written notices to these companies for potential unwarranted price adjustments and profiteering, it is vital for the government to continue monitoring and addressing these illegal price hikes. Ongoing vigilance is necessary to ensure that the benefits of subsidy reforms are not undermined by unscrupulous practices. The deployment of personnel from the Domestic Trade and Cost of Living Ministry to monitor the targeted diesel subsidy implementation at petrol stations is a step in the right direction. Their presence helps deter illegal activities and provides immediate support for compliance issues. However, a concerted effort to dismantle diesel smuggling syndicates is also necessary, as these groups continue threatening petrol station owners and their employees across Malaysia. Effective enforcement will require collaboration with law enforcement agencies and perhaps international partners to address smuggling comprehensively.

The road ahead

Subsidy reforms inherently pose political risks, often met with public scepticism and resistance. The fear of increased living costs and economic instability can fuel opposition to reforms. Nonetheless, the government’s commitment to navigating these challenges and pursuing necessary reforms is commendable. Demonstrating a willingness to engage with stakeholders, address concerns, and adjust policies is key to mitigating political risks. More importantly, strengthening the 4Cs will be instrumental in shaping successful subsidy reforms and a more equitable distribution of benefits across Malaysian society in the future. A holistic approach that considers the multifaceted impacts of subsidy reforms can lead to more sustainable and widely accepted policy changes. – June 21, 2024.

* Yohendran Nadar Arulthevan is a research consultant at Social and Economic Research Initiative.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.