Deputy finance minister says subsidies total RM66.3b, but govt saves up to RM17b by excluding T20 from fuel aid

KUALA LUMPUR, Feb 27 — The government is still committed to paying out subsidies due to high living costs, but can save as much as RM17 billion if it adopts a targeted approach, Deputy Finance Minister Datuk Seri Ahmad Maslan told the Dewan Rakyat today.

He said that the government spends some RM66.3 billion on subsidies in total. This covers fuel, electricity tariffs, and even poultry prices.

“If we don't want T20 to get petrol, diesel and LPG subsidies anymore, the estimated savings are RM15 billion to RM17 billion,” he told Hulu Terengganu MP Datuk Ahmad Amzad Mohamed.

The Opposition lawmaker wanted to know how the government would implement targeted subsidies.

Ahmad explained that the mechanism excludes the top 20 per cent of income earners in Malaysia from purchasing cheaper fuel, in particular RON95 grade petrol, diesel, and liquefied petroleum gas (LPG).

Breaking down the estimated consumption of petrol, diesel and LPG in 2022, he said the bottom 40 per cent of wage earners used 24 per cent and the middle 40 per cent of income earners used 41 per cent while the top 20 per cent of income earners known as the T20 group used as much as 35 per cent.

“So in terms of numbers, RM50.8 billion if we multiply the 35 percent used by T20, the value is RM17.8 billion.

“Can you imagine how many other things we can use from the RM15 billion to RM17 billion to help the people in various matters and affairs in 26 ministries?” he asked.

The deputy minister said subsidies were one of the biggest government expenditures in the Budget, but added that it was still necessary to remedy the rising cost of living.

“Even if the implementation is not targeted causing leakages, the large price gap between the market and subsidised prices has increased the risk of smuggling, especially diesel, in which the tendency to use diesel has doubled.

“Therefore, the government is committed to implementing subsidies with the aim of removing leakages,” he said.

He explained that the first step would be to deal with energy subsidies this year, namely the commercial electricity bills paid by industries, including multinational corporations.

The World Bank has recommended that Malaysia phase out blanket and broad-based subsidies and instead implement a targeted subsidy framework to better support its vulnerable citizens and rebuild its fiscal buffers at the same time.

In its “Malaysia Economic Monitor February 2023” report released earlier this month, the World Bank used fuel subsidies as an example, saying that targeted cash transfers to lower-income households could be introduced to replace the blanket fuel subsidies that are currently practised.

Last month, Economic Affairs Minister Rafizi Ramli said that the targeted subsidy mechanism, which prevents leakages of resources, will improve the country’s fiscal position.