On slippery ground: Malaysia's tiered fuel subsidy

On slippery ground: Malaysia's tiered fuel subsidy

KUALA LUMPUR - Malaysia has followed up on two fuel subsidy cuts in the past year with a proposal for a tiered subsidy system that sceptics say will be hard to execute and looks more like an attempt to placate voters griping about living costs.

In recent years, Malaysia has shielded its citizens from the full brunt of surging crude oil prices with fuel subsidies of around 24 billion ringgit (S$9.33 billion) annually. That has exacerbated the government's budget deficit, one of the region's biggest as a proportion of gross domestic product.

To shore up its finances, Malaysia cut the subsidies in September 2013 and then again this month. That raised the price of petrol and diesel, stirring public debate on inflation and living costs. The subject is growing ever more tender as Malaysia heads towards implementing a 6 per cent goods and services tax in April next year.

Economists say a window has opened up for Southeast Asia to consider dismantling subsidies as global crude prices sink to multi-year lows. But instead of biting the bullet and pledging more market-oriented fuel prices, Malaysia earlier this week proposed tweaking its subsidy system.

Second Finance Minister Ahmad Husni Hanadzlah said on Monday that the government is considering implementing a three-tier fuel subsidy mechanism next year under which some of the population will be fully subsidised and some not at all, depending on how much people earn a month.

Critics of Prime Minister Najib Razak's economic stewardship say it is a tactic to ensure that the majority of society continues to be subsidised, especially poor but politically important states such as Sabah. "The whole idea of subsidies is you target the lower income, and the sad thing is subsidies are also a reward programme,"said James Chin, a professor of political science at the Malaysian campus of Australia's Monash University.

Under the proposed tiered mechanism, individuals earning less than 5,000 ringgit a month will be eligible for a full subsidy. Those earning between 5,000 and 10,000 ringgit would get a partial subsidy and those earning more than that would get nothing.

But the median monthly salary for Malaysia's 9.3 million workers stood at 1,500 ringgit last year, according to a government report published in August. That suggests at least half of the population will continue to get fuel subsidies.

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