What’s not to like about the RON95 subsidy right? I drive a 1,500cc car, and will be eligible for the subsidy.
Plot twist: I live in a T20 household, and technically, I should not be benefitting from that (although, I will). Now that is the problem.
Let’s relook what Finance Minister actually said last Friday:
The Pakatan Harapan Manifesto has promised to provide targeted fuel subsidy to individual car owners with engine capacity of 1,300cc or less and motorcycle owners of 125cc or less. However, the Government has decided to improve on our promise by expanding the scheme to vehicle owners of 1,500cc and below. Owners with multiple cars will not receive this benefit. The Government has decided that each car and motorcycle owner will enjoy up to 100 litres and 40 litres of RON95 petrol per month with a subsidy of at least RM0.30 per litre, depending on the market price of petrol. As many as 4 million car owners and 2.6 million motorcycle owners will benefit from this targeted subsidy which will cost the Government the sum of RM2 billion for 2019. Non- subsidised vehicles will have to pay pump prices for fuel determined on a weekly basis based on the Automatic Price Mechanism (APM). This scheme is expected to commence in the second quarter of next year. This new scheme will also ensure that leakages arising from fuel price arbitrage and cross-border smuggling will be stopped.
In my opinion, this whole idea of subsidizing RON95 is outdated. Let me give you another example:
Let’s say Mr.X makes RM7,000 per month, drives a BMW on daily basis to get himself to work.
His wife, Ms.J also works and earns RM6,000 per month, and uses the MRT to get herself to work. This means both Mr.X and Mr.J are in the Top-20 income group (Department of Statistics Malaysia’s definition of T20 is a household income of RM13k per month).
Plot twist: Ms. J actually owns a MyVi. This means she is eligible for the RON95 subsidy scheme. This means from this point, Mr. X will be using his wife’s car to go to work on daily basis.
See the problem now?
To make this program successful, it will require few things. First, it will require the government to establish a new branch, where both Lembaga Hasil Dalam Negeri (LHDN), and Jabatan Pengangkutan Jalan (JPJ) to share information with each other.
Second, if the Government is to issue some kind of a fleet card, it will too costly to monitor. This means every single petrol station in the country needs to have someone (the petrol attendant has to go to each car and check whether that is you and your car are in place), or a technology capability to track each transaction.
Fourth, it might affect people’s decision on selecting car models. Since this is the case, I bet majority of Malaysians now will be choosing car models below 1,500cc to benefit the subsidy
A few years ago, Bank Negara Malaysia came out with a research that fuel subsidy benefits the upper-middle and high-income group. Put it this way, as you get richer, you will buy yourself a bigger car with a bigger fuel tank, and you will benefit more from the subsidy.
See, subsidies are not necessarily a good thing.
UPDATE: According to Domestic Trade and Consumer Affairs Minister Datuk Saifuddin Nasution Ismail, the government will relook at the eligibility criteria. Hopefully, he reads my blog.