KUALA LUMPUR: While the government's move to roll out the targeted RON95 subsidy programme in the second half of 2024 is commendable, the Central Database Hub (Padu) should first be thoroughly tested, say economists.
Putra Business School economic analyst Associate Professor Dr Ahmed Razman Abdul Latiff said Padu needed to be comprehensive and well-tested before the programme roll-out.
However, he said, even if there was a loophole in the Padu system, the economic consequence would not be as severe as the current subsidy leakages and wastages.
"Perhaps the government is opting to roll out the RON95 in second half to ensure that all infrastructure and databases are in order as well as all trial runs have been performed.
"It is a good move in line with the intention of the government under Budget 2024 to reduce the allocation of subsidy further which will be lower than this year," he said.
He also said that any prospective inflation increase next year, after the planned subsidy is implemented, would be minimal given the current rate of 1.8 per cent.
Earlier today, Economy Minister Rafizi Ramli said the government would roll out a RON95 subsidy programme in the second half of next year, as part of its targeted subsidy programme.
Rafizi said the government needed to find new ways to mobilise its resources while reducing leakages and wastage.
He said Padu would be especially crucial to enabling the government to rationalise its subsidies or even implement social welfare reforms.
Professor of Economics, Geoffrey Williams from the Malaysian University of Science and Technology said the Padu scheme needed to be well tested before the targeted subsidy programme is rolled out.
He said the data in Padu must also be accurate to allow it to be used efficiently.
"Padu is more efficient, it removes the complexity of applying for multiple welfare payments from different agencies and it also provides an incentive to work by removing the welfare trap. In addition, it saves administration costs and cuts out middlemen in the subsidy schemes.
"The Padu scheme needs to be well tested and the data must be accurate. There must also be good data protection," he said.
He added that the Padu system should be able to identify individuals in greatest need based on their low incomes.
"The best way to help them is to raise their income by providing a monthly cash transfer to bring their income up to a minimum threshold or living wage.
"This is a form of Universal Basic Income through a reverse income tax or cash transfer which is essentially the same thing. Under this scheme almost all of the hundreds of the other welfare payments can be replaced. This is by far the best way to deal with social protection," he said.
Williams proposed three ways as to how the government could roll out the RON95 programmes since the method of the roll out was yet to be announced.
One way, he said, was to gradually remove the petrol subsidies which would cause RON95 prices to rise for everyone but then to compensate those on lower income by redistributing funds through cash transfers to raise their income to cover the costs.
Another way, he said, was to identify higher income earners and charge them more for petrol or another way around to identify low-income earners and charge them less perhaps with a discount card or vouchers.
The third way is to charge higher prices as buyers buy more petrol.
"Since low-income groups buy less petrol and high-income groups buy more petrol this targets the subsidies more effectively. It also discourages buying too much petrol and even switching to EVs which is better for the environment. So this tiered pricing scheme is better," he said.