Finance Minister: Current Subsidy Mechanism Not Sustainable

Alex Cheong Pui Yin

28th July 2022 - 2 min read

Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz has once again stressed that the existing subsidy mechanism – which provides blanket subsidies to all Malaysians, regardless of income background – is unsustainable. This is especially as the cost to provide the subsidies is set to exceed the original allocation of RM31 billion by more than RM40 billion.

“The existing approach to subsidies, which involves price subsidies being given to all Malaysians, is unsustainable. At this time, the retail price being paid by everyone for RON95, diesel, liquefied petroleum gas (LPG) and cooking oil is less than half the price without subsidies,” said Tengku Zafrul, adding that the increase in subsidy cost is caused primarily by the rise in global commodity prices, especially oil and petroleum.

Tengku Zafrul also said that not only has the government maintained these aids despite the significant expense, it has also introduced new subsidies that were originally not included in the national budget (such as chicken, eggs, and electricity). With these unexpected expenses, the government’s revenue from taxes and oil will not be sufficient to cover the additional cost incurred.

“Although the price of raw palm oil is currently higher than projected and is expected to generate an additional RM10 billion in tax revenue, this is not sufficient to cover the more than RM40 billion rise in subsidy costs,” Tengku Zafrul further clarified, noting as well that his ministry is expecting an increase in direct and indirect tax revenue of up to RM10 billion.

Given the circumstance, Tengku Zafrul reiterated that the government is determined to review the effectiveness of every subsidy and incentive programme, and to channel any funds saved to those who are truly in need. The first step is already being taken with the formulation of a targeted subsidy mechanism for petrol – which will be studied for up to six months before being implemented – and the government is also looking to streamline other existing blanket subsidies while it enhances direct aids for low-income earners.

(Source: Free Malaysia Today)

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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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