They pointed out that at RM77.3 billion, a historical high, the subsidy is no longer sustainable.
Sunway University professor of economics Yeah Kim Leng noted that the subsidy budget for 2022 already accounted for 78% of the 2021 fiscal deficit of RM98.8 billion.
“It is even higher than the development budget, which is RM75 billion, and this makes it neither sustainable nor efficient or productive,” he pointed out to FMT Business.
Fuel accounts for the lion’s share of the year’s subsidy bill. According to finance minister Tengku Zafrul Abdul Aziz, RM37.3 billion will be utilised for petrol, diesel and liquefied petroleum gas.
Of the remaining sum, RM4 billion will be used for cooking oil, RM9.7 billion for flour and electricity, RM11.7 billion for social welfare assistance, including those under the Bantuan Keluarga Malaysia programme and RM14.6 billion for other subsidies.
Yeah stressed that there is a need for balance. “The burden of subsidy should not fall entirely on the shoulders of the government,” he said.
“The subsidy bill can also be shared equitably among three parties, namely the government, businesses or producers, and consumers (especially those in the T20 and M40 groups),” he said.
Yeah also suggested that the government took a more targeted approach for the T20 and M40 groups by equitably distributing the subsidy costs.
“The government needs to formulate an adjustment on the subsidies and carefully map things out so that consumers will be able to cope,” he said.
“If the current subsidies were to be removed overnight, there would be a full-price shock that would be detrimental to the economy,” he added.
Yeah said that in trying to reduce the impact of rising costs, businesses could try to enhance their operational efficiency to bring down the cost of production.
“Meanwhile, they can also exercise restraint in passing on the cost of production to consumers during these trying times,” he added.
Socio Economic Research Centre Malaysia executive director Lee Heng Guie said the current need for subsidies is not unexpected given the rising prices of commodities.
“The government’s immediate priority is to ease the current inflationary pressure while putting government spending on hold for the moment,” Lee said.
He also agrees that subsidies are not sustainable and that the government should adopt a more targeted approach in the future.
“The government needs to find the right way and time to start easing in the reduction in subsidies,” he told FMT Business.
In an interview with The Star, Centre for Market Education CEO Carmelo Ferlito said “it will make people poorer, by further annihilating the actual value of the currency”.
Ferlito added that there is a need to push for more savings in addition to a cut in government spending.
“In fact, it is precisely because of the expansive fiscal policies of the past two years, which brought money into circulation while the national output was declining, that we have inflation,” he said.
The solution to Malaysia’s predicament, according to Ferlito, is “either increase taxation or avoid that spending (on subsidies) as there is no middle way. And both are painful.”