Geoffrey Williams of the Malaysia University of Science and Technology and Yeah Kim Leng, director of the Jeffrey Cheah Institute on Southeast Asia, agreed that targeted aid would be more helpful than subsidies.
They were commenting on a recent suggestion by businessman Ameer Ali Mydin that the government do away with all subsidies in favour of giving cash aid directly to the people. He said the government’s subsidy schemes were not properly structured.
Earlier, finance minister Tengku Zafrul Aziz had said more than RM15 billion worth of government subsidies were benefiting the rich T20 group, including a big portion of petrol subsidies amounting to RM4 billion.
Williams said cash transfers such as wages and direct subsidies had worked to protect incomes and keep prices down.
However, he acknowledged that they should not go on indefinitely as it would distort the market in the long term.
He said there was a need for an exit strategy, and suggested that a universal basic income (UBI) could be an alternative.
“A UBI has various forms. One form is a tax credit system or negative income tax. Those who work will get a tax credit if their income falls below a threshold and will pay tax as normal if it goes above the threshold,” he told FMT.
Williams said the UBI, which was less distorting to the market, was targeted as it would give people direct cash to spend as they choose.
He said it should be administered through the Inland Revenue Board (LHDN).
This would provide a long-term solution as it was similar to cash transfers but varied according to the people’s income, and could be cheaper overall.
“Hopefully, we can build on this and some of the politicians will present it as an option in the next general election. Better still, Tengku Zafrul can announce it in the next budget, whichever comes first,” he said.
Yeah said cash handouts would be an easier way to help these groups.
“The freedom of choice is useful for these people to optimise their spending and how they decide to save. They will also be able to use the savings for other purposes.
“However, the government should design it in a way that is easy to administer, costs minimal and is not subject to any leakages.
“Also, since the government already has a database of the B40 (through previous initiatives), what it can do now is to top up the cash assistance,” he told FMT.
Yeah said policymakers should conduct a study to determine how much would be needed to provide for the B40, adding that the whole process should be transparent.
He also reminded the government to increase fuel prices gradually as any sharp increase would trigger a bout of inflation which would defeat the purpose of removing the subsidies one day.