KUALA LUMPUR: THE RON95 petrol subsidy should be gradually rationalised to prevent the drastic impact on the cost of living, economists suggest.
IDEAS Malaysia economist and assistant research manager Doris Liew said a complete removal of the subsidy should be implemented by phasing out the subsidy in stages since floating the price at once will affect cost of living.
She said a successful subsidy rationalisation for RON95 will require a well-structured mechanism that ensures targeted support.
"Based on the announcement, it appears that the government will introduce a mechanism to determine subsidy eligibility for 85 per cent of the population. Possible approaches include leveraging existing databases, such as the Central Database Hub (Padu) lists or income tax data, to identify eligible households," Liew told Business Times.
Prime Minister Datuk Seri Anwar Ibrahim said a targeted subsidy plan for RON95 fuel will be implemented in the middle of next year with the savings made would continue to be used for the betterment of the people.
He said the government had been subsiding RON95 up to RM20 billion until 2023. Foreigners and the upper 15 per cent (T15) of the super rich are enjoying the current 40 per cent subsidy meant for the fuel.
He noted that the RON 95 subsidy amounting to RM8 billion enjoyed by the foreigners and T15 should be channelled into education facilities, healthcare and public transport.
Liew said the RM8 billion savings could contribute towards narrowing the fiscal deficit, but the government will likely need to pair it with other measures to effectively meet its deficit target of 3.0 per cent and reduce its debt-to-gross domestic product (GDP) ratio.
This includes increasing revenue through taxation reforms or further rationalisation of expenditures.
"Despite the subsidy reductions, 85 per cent of the population will continue to receive subsidies, costing the government RM12 billion annually. A more comprehensive approach to phasing out the petrol subsidies over time is essential to reduce reliance on them," she added.
Socio Economic Research Centre (SERC) executive director Lee Heng Guie echoed the suggestion that the fuel price needs to be adjusted gradually because the negative impact will be significant compared to diesel.
"The government needs to communicate better (on the implementation) and the mechanism must be ready enough. They should adjust (the price) maybe 20 sen for two to three times then slowly adjust it," he said.
Olive Tree Property Consultants chief executive officer Sr Samuel Tan said the property market will have to bear the expected price hike in products and services due to the RON95 subsidy rationalisation.
"Further fuel subsidy rationalization measures especially for RON95 are expected to cause multiplier effects seeing another round of increase in prices of other products and services," he added.