KUALA LUMPUR: Implementing targeted subsidies, especially on fuel and electricity, will optimise the Malaysian government's financial resources as the savings obtained can be redistributed for other priorities.
However, the Fiscal Outlook 2023 report said implementing the targeted subsidies would need to be effectively coordinated to mitigate the potential impacts on the economy, particularly inflation.
Hence, the report said that the government was transitioning towards implementing targeted subsidies to ensure that the nation's resources were equitably distributed, especially to those most in need of the government's aid.
The report said subsidy programmes that were blanket in nature had led to concerns about leakages and wastage of resources.
The report also noted that blanket subsidies created inefficiency in energy consumption and were fiscally unsustainable.
This led to market distortion and affects energy supply growth to meet the demand from growing populations and economies.
The report said from 2000 until 2021, the government had spent more than RM485 billion on subsidies and social assistance programmes, with an average of RM22 billion each year.
The largest component of the subsidies and social assistance in 2021 was fuel subsidies at 45 per cent, followed by education (12.5 per cent), welfare (9.6 per cent), agriculture (6.9 per cent), transport (6.8 per cent) and basic necessity goods (4.4 per cent).
Since 2021, subsidies and social assistance spending have surged, particularly on fuel and cooking oil, driven by higher commodity prices.
In the first half of 2022, Malaysia benefited in the form of revenues from the high crude oil prices, which soared above US$100 per barrel.
However, the subsequent increase in fuel subsidies has more than doubled that of petroleum-related revenue.
Similarly, subsidies for cooking oils have far surpassed the revenue collected from the higher crude palm oil price.
In total, subsidies and social assistance are estimated to cost the government about RM80 billion in 2022, which is higher than the budgeted development expenditure of RM76 billion for 2022.