Up to 18% savings from targeted subsidies

KUALA LUMPUR: The government is expected to shave up to 17.5% of its petrol and diesel subsidy expenditures once the petroleum subsidy rationalisation plan takes place next year, says Economy Minister Mohd Rafizi Ramli.

The subsidy rationalisation is on track to be carried out and the government is already in the final stage of discussing its implementation.

“As for cost savings, we have different models and we have run the numbers and it will ultimately depend on what the government decides.

“The savings can range from 10% to 17.5% from the blanket subsidies that we have now,” Rafizi said after opening the conference on sustainable development for thriving communities 2023 organised by Monash University Malaysia here.

“There is no question about moving from blanket subsidies to targeted subsidies. The savings from this will be reallocated to some type of social protection for everyone but we must be seen to do this fairly and transparently,” he told StarBiz.

From Jan 1, the national central database, which will contain data such as household income, will be opened to Malaysians.

“Citizens will be able to log in and validate their data – these are the combined data that the government agencies have of your household. Once we have this we will be able to estimate better,” he told a panel session.

“For the first time, we hope to be able to have a decent insight into each household’s social economic standing especially in the Malaysian context where close to 40% of our citizens are now working in the informal sectors,” he added.

Rafizi said the data validation process would be carried out from January to March.

“Most probably the next meeting with Prime Minister and the Cabinet will be the last meeting before we decide what the final mechanism for targeted subsidies is.

“Those whom we feel are in the lower income categories, will have a set of social assistance of which the manner is still being discussed. Of course the strongest argument is for a monthly cash payout. If let’s say a person’s wages have picked up, then we can move away from social assistance to move towards social protection,” Rafizi added.

He noted this is the best window of time for the government to implement such reforms for a sustainable future.

“Universal social protection will be independent of your employment status and where you come from. These will be announced later.

“We hope to get public acceptance on what we expect to be an unpopular decision. Blanket electricity subsidies have by and large been unwound,” he said.

Rafizi, who is in charge of approving development expenditures for the various ministries, said it is important to cut down the turnaround time in terms of a government’s project implementation from when it is approved.

“Procurement for health sector sometimes takes a two-year turnaround time just to replace one medical equipment. When it takes too long to complete a procurement, the cost will balloon. For some medical equipment, we can explore the leasing them instead.

He said number of government departments have a habit of booking an allocation first.

“I went through line-by-line, there will be hundreds of items of just RM10. I was told they had to book it first because it will take them about two years before they bought them.

“They were concerned of being penalised of not being able to spend. This shows the long process from allocation to procurement,” he said.

“But we are looking at how to strike a balance between decentralisation. We are at the tail end of a very centralised system especially for procurement and project implementation. We must strike a balance without sacrificing accountability - we will be able to see much better processes in the next one year.

"For every ringgit we spend, it must have as much spillover effects as possible and not be guzzled out by bureaucracy or inefficiencies,” Rafizi added.