KUALA LUMPUR: Implementing targeted fuel subsidies is crucial, as it will save the government money, allowing it to spend on other areas of support, says an economist.
Economist Professor Dr Geoffrey Williams said it was crucial to implement the subsidy rationalisation process to save money and target assistance better.
"It is essential to implement the subsidy rationalisation process to save money but also to target assistance better.
He said subsidy rationalisation for petrol and diesel must begin first, as they account for a large amount of money.
However, he said it must be implemented in a moderate and sensible manner.
Williams added that the subsidy rationalisation process was already well underway before yesterday's announcement, which includes the rationalisation of electricity subsidy and standardisation of chicken prices, for example, which had saved (the government) RM4 billion and RM1.2 billion, respectively.
"This was followed by the (introduction of the) Central Database Hub (Padu), which provides the data for targeted subsidies. So a lot of progress has been made already," he said.
Yesterday, Prime Minister Datuk Seri Anwar Ibrahim said the Cabinet had agreed to implement targeted fuel subsidies starting with diesel, which is projected to save the country RM4 billion annually.
Anwar said the targeted fuel subsidies would apply only to users in the peninsula.
Those who would not benefit from it, he said, were the people in the Top 20 income group and foreigners.
He said the government was serious about coming up with a Progressive Wage Policy for the private sector, in line with improvements made to the salaries and allowances of civil servants.
He added that the progressive wage model, whose pilot project is slated to be implemented soon, was a wage subsidy programme and a form of Universal Basic Income through cash transfers or negative income tax.
Should this be rolled out on a large scale, he said, it would raise disposable income.
He suggested the government reform the tax system to introduce an e-payments tax that could replace the Sales and Service Tax (SST) to increase disposable income.
"A 2.25 per cent tax on e-payments can replace SST and cut the taxes on the products and services currently taxed. This will reduce prices and raise disposable income.
"Raising productivity or promoting the gig-economy as extra income sources are also options for raising disposable income."
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said it was crucial for the government to rationalise its subsidies, as at present it only benefited high-income earners.
"At the same time, it resulted in other issues, such as (fuel) smuggling and consumption by foreigners.
"According to the Auditor-General's Report, the total subsidies for 2022 were RM55 billion and 82 per cent of the total subsidies allocation was meant for fuel related products, such as Ron95, diesel and liquefied petroleum gas.
"At 82 per cent, it means fuel subsidies always command a higher share (of government spending for subsidies), which means there will be a lot of wastages. The government needs to review this to ensure that every single sen spent will benefit the rakyat," he said.
He added that rationalising the subsidies and raising tax rates would give more fiscal space for the government to be an effective enabler to promote productivity.