KUALA LUMPUR: A new approach for the subsidy rationalisation of RON95 petrol that is based on usage levels is the best alternative to date.
Economist Dr Geoffrey Williams said the method is already adopted in electricity and as for petrol subsidy, it can be implemented at the petrol pump.
"The idea of giving subsidies based on usage is by far the best alternative," he told Business Times.
"The idea would be for the full subsidy to be available on smaller volumes mostly used by the poor and removed for higher volumes mostly used by the rich. It can be simply implemented at the petrol pump," Williams added.
In an interview with Berita Harian, Treasury secretary general Datuk Johan Mahmood Merican said a new approach will be implemented for RON95 petrol subsidies by mid-2025.
It will focus on methods that are fairer and do not burden the public.
He said the approach of raising RON95 prices in line with market rates and providing cash assistance to eligible individuals, as implemented by previous administrations, has proven to be less effective.
"The government under Tun Abdullah Ahmad Badawi once implemented this approach, raising petrol prices and providing cash payments of over RM600 to eligible citizens.
"However, this step caused dissatisfaction, especially among vulnerable groups."
He said one of the main issues with cash assistance is that it might be used for other needs, and cause recipients to face the burden of higher prices over the long term.
Johan added that the varying fuel usage levels between individuals also led to dissatisfaction.
"For example, cash assistance recipients who live near their workplace may find the amount sufficient. However, those who live farther away may find that the amount is insufficient to cover their daily fuel costs," he said.
Johan emphasised the importance of an approach that allows eligible individuals to receive subsidies based on their usage levels.
"This approach is fairer and can reduce dissatisfaction," he said.
Meanwhile, Williams noted that cash assistance is not effective for subsidies of products like petrol but would be effective for subsidies of income.
"Money saved from subsidy rationalisation can be redirected through cash transfers using Padu and LHDN," he added.