Current subsidy mechanism unsustainable, warns Tengku Zafrul

Finance minister Tengku Zafrul Aziz has warned that the existing subsidy mechanism, in which subsidies are given to Malaysians across the board, is unsustainable.

(FMT) – With Putrajaya’s expenditure on subsidies set to increase by over RM40 billion compared to the RM31 billion allocated in its 2022 budget, he said revenue from taxes and oil will not be sufficient to cover the rising costs for subsidies.

He said this was due to the rise in global commodity prices, especially oil and petroleum.

Tengku Zafrul maintained that the government had not reduced the aid and subsidies for the people, saying it actually had introduced new subsidies that were not allocated for in the federal budget, such as for chicken, eggs and electricity.

“Although the price of raw palm oil is currently higher than projected and is expected to generate an additional RM10 billion in tax revenue, this is not sufficient to cover the more than RM40 billion rise in subsidy costs,” he said.

In a parliamentary written reply, he said the economy was on a strong recovery trajectory, with his ministry expecting an increase in direct and indirect tax revenue of up to RM10 billion.

“The existing approach to subsidies, which involves price subsidies being given to all Malaysians, is unsustainable.

“At this time, the retail price being paid by everyone for RON95, diesel, liquefied petroleum gas (LPG) and cooking oil is less than half the price without subsidies.

“With that, the government is reviewing the effectiveness of every subsidy and incentive programme to ensure optimum funds are allocated and that funds saved can be channelled to those in need,” he said.

On top of a targeted subsidy mechanism for petrol, he said, the government was looking to rationalise existing blanket subsidies while beefing up the direct aid being given to low-income earners.

Tengku Zafrul was replying to Hassan Karim (PH-Pasir Gudang), who had asked how Putrajaya planned to ensure it could foot the RM80 billion bill for subsidies.