PETALING JAYA: The plans to restructure RON95 fuel subsidies is on course for implementation in the middle of the year, with consumer groups urging the government to defer it due to rising costs and economic uncertainties tied to the United States’ new trade policies.
Government insiders said that so far, things were going according to plan with officials working on the final mechanism on ways to redistribute fuel subsidies to targeted households.
They said the government will still keep an eye out for any sign that the US tariffs will have a wider impact on the global economy especially on global oil prices and inflation.
So far, the impact of US tariffs on imports from China, Mexico and Canada is not large enough to justify reviewing the plan to rationalise subsidies which was announced by the Prime Minister in the 2025 Budget last year, they said.
“So far, there is no indication that we are delaying or deferring the plan. The impact from the US has not forced us to reconsider,” said an official with one of the ministries directly responsible for carrying out the plan.
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Another official said the uncertainty and impact from the US’ new trade policies under President Donald Trump has already been factored in by financial markets.
“So, in reality, the uncertainty has been priced in. The market is certain that when it comes to the US, there will be uncertainty and instability,” the official said, requesting anonymity.
So far, the unity government has decided that the economic uncertainty due to the US policies is not a strong enough reason to delay the subsidy rationalisation, the official added.
“In fact, the arguments to proceed with the rationalisation are stronger because it is a vital economic reform.”
The unity government has repeatedly said it will end blanket subsidies for RON95 petrol – which keeps the price at the pump at RM2.05 per litre – by the middle of this year.
Instead, those subsidies will go directly to low income and low-middle income households, while wealthier motorists will have to pay full price for the fuel.
According to research by SME Bank Group, in 2022, the government spent RM23.1bil on subsidies for RON95 fuel and RM18.7bil for diesel.
However, new tariffs announced by Trump, on imports from Mexico, China and Canada, have rattled global markets and sparked worries of a world economic slowdown.
The prospect of a global slowdown has worried consumer associations, unions and small business associations as it could dampen local business sentiment.
They argue that such a phenomenon, coupled with a surge in inflation from cutting fuel subsidies, would adversely impact low income families and micro-entrepreneurs.
Experts echoed the view that the policy is essential for sustainable economic growth as it efficiently redirects government funds to those who need it and instils fiscal discipline among businesses and consumers, they said.
“We must detach long-term structural reforms which are under the control of Malaysian policymakers from short-term external shocks,” said economist Prof Geoffrey Williams.
“Subsidy rationalisation of RON95 is essential to long-term reforms, fiscal discipline and redirecting funds to social welfare priorities,” said Williams, the director of Williams Business Consultancy Sdn Bhd.
Lee Heng Guie of the Socio-Economic Research Centre (SERC) proposed that the government gradually cut back on RON95 subsidies to soften any impact on consumers.
“Some have argued that with all this trade uncertainty, it will affect business or household spending. But I think the government knows that it still has to go ahead with the subsidy cuts but manage it in a gradual manner,” said Lee.
