Economist: Govt Can Consider Implementing Tiered Pricing System For Utilities And Petrol

Alex Cheong Pui Yin

27th December 2022 - 3 min read

Economist Professor Dr Geoffrey Williams has suggested that a tiered pricing system, similar to that used for electricity charges, should be implemented for utilities and petrol prices. This is as the government continues to find the best ways to put into place a targeted fuel subsidy scheme.

Dr Williams said that with this tiered pricing system, those who use more of utilities and petrol should be made to pay more, and the subsidies provided must focus on those who use less, namely households as well as small and medium enterprises. “Those buying small amounts for their motorbike or small car should get the full subsidy, whereas those buying large amounts should get less subsidy. This will also encourage them to economise and lower their carbon footprint,” he stated.

Additionally, the economist – who hails from the Malaysia University of Science and Technology – emphasised that the system should be based on the amount of fuel purchased, instead of the car or engine size. If the subsidies were based on engine size, individuals in low-income groups with big second-hand cars may miss out on the subsidy that they are entitled to, he said.

“Those with big cars because they have big families will pay more even if they are poor. Rich people with small cars will still get the subsidised price. Poorer people with no car will not benefit at all, so it is not targeted at the poor,” Dr Williams explained, adding that the complete withdrawal of fuel subsidy will not work as well, since the price of fuel will likely increase in such a situation, which in turn causes inflation as costs are passed on to products and services.

“Tiered pricing will reduce this effect because the average price rise will be lower. Targeting engine size will not have the same effect. So it is a delicate balance that requires good data to get the pricing right, especially for businesses that use petrol and diesel,” said Dr Williams.

Dr William’s suggestions came following recent comments by the Domestic Trade and Cost of Living Minister, Datuk Seri Salahuddin Ayub, who said that his ministry will be tapping into the Road Transport Department (JPJ) database to facilitate the provision of targeted fuel subsidy. This takes over from an earlier study from the previous government that attempted to tie the targeted fuel subsidy mechanism to e-wallets.

Aside from suggesting a tiered pricing system for fuel subsidy, Dr Williams also highlighted the benefits of a Universal Basic Income model, citing that it is more effective in assisting low-income groups. Briefly, the Universal Basic Income model proposes that all citizens should be provided with periodic cash allowance (instead of a one-off grant), without any means tests to provide them with a standard of living above the poverty line.

Other experts, too, have suggested alternative methods to implement targeted subsidies. Professor Dr Chung Tin Fah from HELP University, for instance, proposed for the government to provide these assistances using income data from previous aid programmes, including Bantuan Prihatin Rakyat. “Even if they do not use it for fuel, they can use it for food,” he said, adding that the aid can be provided either via cash transfers or cash vouchers.

Sunway University economist, Professor Dr Yeah Kim Leng, meanwhile, said that the effectiveness of a new subsidy mechanism and implementation problems can only be identified once it is rolled out.

(Source: The Star)

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Alex Cheong Pui Yin

Previously covered recruitment-related stories and had a short stint as a copywriter for the property industry. She subsequently developed an interest in investment and robo-advisors.

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