Tuesday, October 28, 2014

Tiered Fuel Subsidy System: Please Don’t Go There

The floodgates are opening (excerpt):

Full fuel subsidy only for those earning under RM5,000 monthly

KUALA LUMPUR: Those who earn more than RM10,000 per month will not enjoy any fuel subsidy under the subsidy rationalisation scheme to be implemented next year.

In announcing this Monday, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said the programme would be divided into three tiers.

After early whispers before the budget, it’s now way out in the open. But, there’s much better ways of managing this than shifting to a convoluted system that’s going to be full of holes. Here’s one fellow Tweeter’s take on it (it’s in BM, but that shouldn’t be a problem, right?).

My personal view is that we already have an existing mechanism for transfers under BR1M – just expand on that, since we’re looking at more or less the same constituency. Having a separate system (with different income thresholds to boot), is a recipe for higher costs and leakages.

More to the point, I’m leery of the idea that we must have specific subsidies for petrol, food, or whatever, as some people have been suggesting as alternatives, like food stamps or petrol cards. The basic, underlying, fundamental, primary, chief, key, crucial, supreme, critical, essential, vital and uppermost objective isn’t cheaper food or cheaper petrol for lower and middle income households, it’s really about income support for a decent standard of living.

Different households will have different consumption patterns, which means that you won’t be affecting even households at similar income levels alike. Cash transfer are far superior to any other alternative.


  1. True.
    I will ask my wife to fill in petrol if such tiered fuel mechanism is implemented.

    Mat Bonk.

  2. Mat Bonk,

    The scheme as it was described to me, will require Malaysians to declare their income and register their car with their MyKad, with only one car per person allowed.

    1. En Hisham,

      ... and who will check the Reg No in MyKad to match with that filling at the pump?

      Mat Bonk

    2. @Mat Bonk,

      I was wondering that myself. This is such a mess. No matter what validation systems are used, there's going to be loopholes and practical issues. It's simply not worth the trouble

    3. Not that I'm supporting a tier system...
      *devil's advocate for the moment*

      But isn't the food stamp system in the US prove you can still have a tiered pricing mechanism for inelastic goods?

      Yup, I guess giving lower income groups fake money for fuel does sound a bit dumb.

      For the crazies who are interested:

    4. As has been very memorably remarked, we ‘mudah lupa’.
      So, once again, what were the major issues with the petrol & diesel subsidies? Oh yes, they were being enjoyed by people who shouldn’t be enjoying them, especially those who earned above a certain amount per month and (the worst of the lot) those who were ‘profiteering’.
      We haven’t heard very much about efforts to make the latter group ‘cease and desist’ -- nobody seems to have been caught and punished? No diatribes about the efficiency of our enforcement agencies, please!
      As regards people in the former group, who have the fortune (or misfortune, as the case may be) to earn more than the (arbitrarily set) threshold(s), let’s punish them (again!). Never mind that they are also privileged to be paying income tax -- unless they can get a setoff for zakat, which by the way goes to the state and not the federal treasury, and so does not contribute in any significant way to the funding for BR1M (this may be a hornet’s nest, so I shall cease and desist in talking about it any further).
      My point is, instead of plugging the loopholes & leakages and dealing with the real issues (wastage, profligacy in public spending, etc.), the powers that be are going to come up with more novel (and you can bet very expensive) tweaks that are going to be ‘a recipe for higher costs and leakages’ (as you have put it).
      I’m not sure whether any studies have been made to determine just how many ‘freeloaders’ have been’ unjustly’ benefitting from the subsidies, but one perception is that this is just a ‘strawman’. People who drive luxury cars will not be pumping other than RON97, so where are the ‘freeloaders’?
      Penny wise, pound foolish….

  3. That's just stupid.

    It is simply more efficient to just enable subsidized petrol (if absolutely necessary at all) according to type of vehicle (by cc.). All the registration and MyKad exercise will cost more than the targeted subsidy itself. Makes no sense for luxury car owners to enjoy the subsidy, if I remember correctly that was the original gripe. Does it address the number of cars per household? or per family? Once again, the use of income as an indicator instead of consumption.

    1. Not all luxury cars have high cc rating. Prius C has 1.5 liter engine, Waja has a 1.6L engine. Prius C costs almost 3 times more compared to the Waja.

  4. As a hacker, I await for this program to be implemented. It'll be much easier now to mine the database of practically all adult Malaysians.

    Thank you Husni.

  5. Everyone who registers gets their names in the database. Besides the BRIM list, now one can vet who pays taxes and who doesnt. Not that I dont pay.


  6. The gomen wants to be fair to the rakyat but they dont think like the rakyat! Sure flop one. Implementation and enforcement will fail. Also the info will be abused and missused by corrupt people. Can we sue the gomen if our personal info is stolen by crooks?

  7. Spending billion appointing cronies to exclude the 10% who don't entitle the subsidy, that's called malaysia boleh!

  8. what if Mycard reader not functioning? what if Mycard microchip cannot be read? then you have to queue up much longer just to settle the process of identification. then what if payment is using credit card?

    1. agree. have gone through same difficulty in a bank some time ago. i could not withdraw as my Mykad microchip is broken. can you imagine the hassle in the petrol station later?

      it is really amusing to see how 'intelligent' our wakil rakyat are..

    2. Often times it's the MyKad that's old or unreadable. If that happens, I'm guessing if you want the subsidy you have to get your MyKad fixed. Lol.

  9. Please save all these gimmicks. The tier idea is to make SIMPLE thing more COMPLICATED and thus more people SUFFER. I am not fond to the petrol subsidy but later we sure pay for unsubsidized petrol price and on top of that petrol tax. Ended up one of the most expensive car and petrol in the region.

    1. Your point being what, exactly?

      Are fuel subsidies a good thing? Can Malaysia afford fuel subsidies for all, regardless of income levels?

      What's the prices of cars got to do with fuel subsidies? That is just plain wrong.

    2. My point is just remove the petrol subsidies and reestablish petrol selling tax of RM0.58. In fact, I hope that the car price should be expensive in the future.

  10. Gosh... I don't even know why we bother about our household budgets and finances when the federal government is playing masak-masak with budgets and finances.

    It's like householders are asked to scrimp, save, tighten their belts and trade down their lifestyles (ok, ok - there's an element of "class warfare" here with inequalities and all), but the federal government and BNM can continue on their merry way with "accommodative" interest rates and pushing up domestic consumption, with nary a thought for the future.

    Why isn't there the political will to cut the Gordian knot of fuel subsidies? Why the seemingly endless dithering and hand wringing over a straightforward issue?

  11. KISS pak menteri....keep it simple stupid..... Put the fuel on market price and if use mycard pay at subsidised price. Immediately save bilion from penyangak subsidi. Zero diverted load betweem depot to retail station. Ok akan some leakages at stesen minyak but bulk of the problem solved. Rationalisation at a later phase la pak menteri.

  12. Penny wise pound foolish...but someone is going to laugh out loud to the bank.

  13. Blimey, the so-called Messiah aka the great Widodo is about to become a Dodo ( a kind of species that extincted itself by making promises it knew it cannot keep). The Javanese rabble under Merapi are stirring like their erstwhile bucolic volcano:


    Little wonder he selected a human rights "angel" as defense minister in anticipation of impending chaos and little wonder he has lost a chunky bite of his lustre in the eyes of his once delighted fan clubbers:


    Yes, the same golden lustre which one silly juvenile brained chickyhawk who frequents these parts as an agent provocateur troll, so copiously and swooningly orgasmized about a week ago. Widodo a Reformist? My shit!

    2. See, I told yah... you lose the balance when disequilibrium is created. Raise fuel prices and you have either rabbles clamoring for higher wages or clamping down on their consumption, both with inevitable costs to the economy.

    3. Elsewhere, a complete subsidy removal (for instance on fertilizer) as I suggested will for starters double the price of rice and cooking oil in the market to reflect actual input costs. Theoretically more income for rural farming Samads but more angst for urban wage earning Sams. Reality-ily, the landed classes are cough...cough....the loaded...so...sigh....

    4. The rich chick hawks...nah they wont be impacted one iota...for instance a CB keeping rates low is a cue for showtime:


    You see that is the privilege of being loaded. You can smack your lips, top up and down under......hahahaha

    Warrior 231

    1. Naughty naughty Warrior .......

      Zuo De

  14. Interesting premise - do away with all subsidies. Including those for education, health care and public transport.

    The top 1, 5, 10 or 15% won't be bothered.

    The poor and the disadvantaged - who cares about them? As long as the VVIPs and VIPs are happy, little else matters.

    This may be good economics, but it sure as hell is lousy empathy.

    1. Anon 12:36 AM

      Whoa, hang on.....why are we being so cavalier as to dismiss the proles as being of no consequence?

      After all, the proles form the "bedrock" of our consumption-driven society, don't they?

      Remove the proles from the mix and the resulting "top heavy" segment are unlikely to be able to spend enough to keep the Malaysian economy humming along smoothly.

      Not the least because the "patricians" have the discretion to be able to spend their wherewithal where they will - be it lux property in London or New York or shopping soirees in Paris, Milan, Hong Kong or Singapore.

      It's downright unfair, but whoever said that the world is fair?

  15. On a not altogether unrelated topic, do we really need a HSR link between KL and Singapore?

    Will HSR fares be "subsidised" so that the proles can commute between the 2 cities in 90 minutes or less?

    I can foresee financial "sensitivities" coming into play here.