‘Choppy waters ahead’ for petrol subsidy cut but Malaysia will factor in not just household income: Minister

SINGAPORE: The Malaysia government’s “once-in-a-generation” plan to roll back petrol subsidies from the middle of next year is crucial for fiscal reform but expected to cause significant public backlash, said its economy minister.

“We are prepared for the choppy waters ahead,” Mr Rafizi Ramli said in an interview with Bloomberg TV released on Monday (Oct 21).

“Obviously there will be people affected and there'll be people unhappy with it and people have to adjust their consumption, so I do expect a lot of noise in the beginning,” he said.

“But my hope and our responsibility in the government is to make sure that we manage this properly so that it is sustainable,” he said of the “once-in-a-generation decision that affects everyone's life”.

Subsidies for the country’s most widely-used RON95 fuel will be cut for Malaysia’s top 15 per cent income group, Prime Minister Anwar Ibrahim announced in his Budget speech last Friday. 

The government currently spends RM20 billion (US$4.63 billion) a year on blanket subsidies for RON95 petrol, which unfairly benefit the top 15 per cent of earners, as well as foreigners, in Malaysia, he said. The sale of RON95 petrol is reserved for all Malaysian-registered vehicles. 

The subsidy cut will save the government RM8 billion, and savings will be used for programmes aimed at improving the welfare and livelihoods of Malaysians, he said. 

The top 15 per cent of households are those earning a monthly income of around RM13,000 (US$3,022) or more. The amount varies depending on the state in which they reside. 

VARIABLES BESIDES HOUSEHOLD INCOME TO BE CONSIDERED

Household income will not be the only factor that determines who qualifies for subsidised RON95 petrol in Malaysia, Mr Rafizi told local media over the weekend.

“I can confirm it will not solely use household income levels in the B40, M40 and T20 categories,” he said. B40 refers to the bottom 40 per cent of income earners in Malaysia while M40 refers to the middle 40 per cent. 

“It is not to say that if you earn a certain amount, you won’t obtain the subsidy (for RON95 petrol) … We can’t draw a line based only on household income. We have to consider other variables and not apply a one-size-fits-all approach,” he said on Sunday, as quoted by media outlet Kosmo. 

Mr Rafizi did not elaborate on other factors that would be considered, but said his ministry is conducting simulations and processes with the finance ministry, the statistics department and other relevant departments. 

Second Minister for Finance Amir Hamzah Azizan also confirmed on Sunday that details of the subsidy implementation, such as income threshold and mechanisms, are still being discussed and will be announced next year, Bernama reported. 

One proposal being considered is for Malaysians to produce their government-issued identity card or MyKad at the petrol pump, Transport Minister Anthony Loke said on Saturday.

Currently, RON95 petrol costs RM2.05 per litre in Malaysia, the second-lowest price in Southeast Asia behind Brunei. 

According to the Malay Mail, Malaysia has subsidised petrol prices since the early 1980s to keep fuel prices affordable for Malaysians while facilitating economic growth. 

This has become a significant source of government expenditure with the rise in oil prices. In 2023, Malaysia spent over RM50 billion (US$11.6 billion) on direct fuel subsidies alone. 

In June this year, it cut diesel subsidies, resulting in a price increase of about 50 per cent for the fuel, but provided cash assistance to eligible owners of diesel vehicles, as well as small-scale farmers and commodity smallholders.