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Economists warn new fuel subsidy scheme may cause price hike

petrol subsidy malaysia

Ahirul Ahirudin
Written by Ahirul Ahirudin

KUALA LUMPUR – October 9, 2019: The impending implementation of a new targeted petrol subsidy scheme on January 1 next year will likely cause goods and services price hike.

Two economists, who gave that warning when speaking to The Mole said the government may nonetheless prevent such a price hike by ensuring strict enforcement to stop unscrupulous traders from taking advantage of the situation.

Associate Professor Dr Ahmed Razman Abdul Latif of the Putra Business School, Universiti Putra Malaysia said it is inevitable that there will be businesses which will try to exploit the implementation of the scheme to justify a price hike.

“When the new petrol subsidy scheme kicks in and float mechanism takes place, petrol prices for the masses will go up or down according to global price, and if it goes up too fast, there will be the possibility of price hike for goods and services,” said Razman.

He proposed for the government to tighten enforcement and consumers to be more sensitive to fluctuation of prices.

“More importantly, the government must ensure that they step up monitoring and the people must help by reporting on traders who increase price of goods and services after petrol price is floated,” he said.

On the planned new method of petrol subsidy allocation, Razman said he believes that it can be improved over time.

“Cash transfers do not guarantee that it will be used solely for petrol. In this technological era, it doesn’t have to be paper vouchers. The government can make use of e-wallet system or even our identity card.

“And maybe, if the government realise how much savings they can get from this new petrol subsidy scheme, they can widen the scope of recipients over time, covering other groups like M40 that could benefit from petrol subsidy,” he said.

Razman’s opinion was echoed by Professor Dr Faridah Hassan of Universiti Teknologi Mara, who said there will be some retailers who are bound to take advantage of the new fuel subsidy scheme.

Stressing her opinion on the matter, she insisted for petrol subsidies to be given only on individual basis and not to retailers or food delivery service operators such as GrabFood.

“GrabFood and similar businesses must think of strategies for costing or risk losing market share. In the end, the choice of paying is in consumers’ hand and that people will not hesitate to boycott if the service charge gets too unreasonable,” said Faridah.

Once the targeted petrol subsidy scheme comes into effect, the price of RON95 will be floated according to the market and only recipients of Bantuan Sara Hidup (BSH) will receive a subsidy.

Subsidy recipients, who own a car will receive RM40 monthly while those with motorcycle will receive RM12 monthly, The money will be banked in quarterly every year starting next April.

At present, the price of RON95 petrol is subsidised and fixed at RM2.08 per litre while the price of the higher grade RON97 is controlled by a floating mechanism.

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Ahirul Ahirudin

Ahirul Ahirudin