“The fact remains that foreign nationals and the wealthiest 15 per cent of consumers are enjoying 40 per cent of the RON 95 petrol subsidy, value at RM8 billion. This RM 8 billion is better directed towards improving public services such as education, healthcare and transportation, “said YAB Dato Seri Anwar when tabling the Budget on 18 October 2024.

He added that “85% of the population continues to benefit from subsidised prices” and” the Government plans to implement targeted subsidies for RON95 petrol in mid-2025”.

While it has been 2 weeks, since the announcement details on the implementation mechanism remains scant. Nonetheless, economists, industry and the rakyat have filled in the vacuum with discussions on various options.

Many have proposed that pump prices be linked to one’s identification card (IC) – which, if implemented, will have to be updated to include one’s economic status to identify those in the T15 category.  This option seems feasible as we each have a unique IC number. However, one’s income is not a static figure and thus will require constant updating. Worst still, changes in your income level could cause you to move into the T15 category but there is no incentive for you to update as you will now lose the subsidies you had been enjoying.

It has also been raised that consumers will find ways to circumvent the system ie some may use other people’s IC to get the subsidies. Depending on the quantum of the subsidy given, there could be incentive for the emergence of a black market

Others have proposed that pump prices be linked to the capacity of the car – with large cc cars not receiving the subsidy. The challenge here will be to introduce a reliable mechanism to differentiate the cc of the car as it is filling up petrol- as there are cases of modifications of engines.

Some have also proposed that petrol prices be tiered based on usage – ie the more you use the more you pay – as is the case for electricity. Tiered pricing has worked well for electricity because it is easy to track total consumption as there is a single supplier (TNB) and the entity that is consuming (ie house / apartment / office / factory) is static; whereas for petrol the vehicle is able to “consume” from different pumps as well as different petrol companies thus reducing the ability to track accurately.

Also high usage cannot be correlated with high income because low income, especially in rural areas where public transport coverage is limited, are forced to resort to private transport.

Another suggestion has been to issue fleet card for those entitled to the subsidies as has been implemented for diesel. “The five major oil companies participating in the Subsidised Diesel Control System 2.0 collectively provide one million fleet cards, ensuring a continuous supply, said Domestic Trade and Cost of Living (KPDN) Minister Datuk Armizan Mohd Ali on 30^th May 2024.  However, if 85% of the population is to continue to be eligible for petrol subsidy, the quantity of cards required may strain the providers.

Overall, all the above suggestions involve consumers being met with different pump prices for the same item which puts the burden on petrol stations to have the systems to detect who is entitled to what price. This could be costly affair, result in queues at the pumps as well as disputes on eligibility. It seems no other country has different pump prices for different customers.

There is also the worry that while much may be spent on these systems at the petrol pumps to tax the T15, in the end the T 15, which have the financial capability, just switch to electric vehicles, especially since government is encouraging the switch.

PM also said that the government will gradually reduce education and healthcare subsidies for the top 15 per cent of earners.  He quoted that “The average annual tuition fee paid by undergraduate pharmacy student is RM3,000 compared to the total cost of education, which amounts to RM30,000. This subsidy is provided regardless of family income”

Once again there is little details on how this will be implemented. If national schools, public universities and hospitals have to now charge based on income of their users, the responsibility of knowing their users’ income will fall on their laps, which adds additional administrative burden on an already stretched workforce.

In Malaysia, school going children are made to wear school uniforms. This is because it creates a sense of community and more importantly equality in a school environment, placing children on a level playing field. Introducing tiered fees may erode this fundamental principle of equality that we are trying to inculcate.

Also many would argue that public education and public healthcare are services that should be afforded to all equally. In the same breath, they would also argue that this should covered by monies from income tax, which is already tiered based on one’s earnings, In many developed countries, income tax rates are high so as to ensure that the government is able to provide quality public education and healthcare to all

“Subsidies, in principle, are akin to charity – and ipso facto, should not be exploited by the upper crust of the society,” said PM.

While in full agreement on the need for the government to move away from blanket subsidies, effective implementation is key. The complexity of implementation with regards to fuel subsidies, could lead to leakages and thus the government may not get the savings it forecasts which in turn hampers its ability to channel the funds to more productive uses. As such, it is necessary to run pilot tests of the implementation mechanisms first to gauge its effectiveness but to also have the courage to go back to the drawing board if implementation difficulties outweigh the positives.

Also reducing subsidies in the sphere of education and healthcare, which many see as necessities, can lead to unintended consequences as highlighted earlier which may overshadow the proposed noble intentions.

Against this backdrop, it could be more effective to move away from subsidising goods altogether but instead increase social assistance to the needy via increased broad- based taxes such as income tax.