Earlier this month, the government announced that ownership of property and luxury vehicles, alongside monthly income, would be among the factors in determining eligibility for the targeted RON 95 fuel subsidy, for which implementation plans are expected to be revealed at the end of September.
While targeted subsidies may help redirect aid to the poorest households, the programme could inadvertently penalise families in the M40 middle-income group unless the country’s structural economic challenges are fully taken into account before finalising the rationalisation criteria, says an economist.
According to Universiti Teknologi Mara business management faculty senior lecturer Mohamad Idham Md Razak, the move should in theory be beneficial to lower-income B40 households by redirecting finite government resources away from higher-income groups. “This potentially increases the per-capita benefit for those most in need or frees up fiscal space for other pro-poor initiatives,” he said.
However, there was the worry that many in the M40 group could be unfairly disadvantaged under the new framework. “This cohort often possesses assets such as a single modest property and a family car. These are not luxuries but necessities for economic participation,” he told the New Straits Times.
“The risk is that these households, already strained by the high cost of living and significant debt obligations, could be wrongly categorised as ineligible. This would effectively reduce their real disposable income and create a new ‘squeezed middle’ at the arbitrary threshold where eligibility ceases,” he said.
Idham said that with stagnant wages, a rising cost of living and high household indebtedness, it was vital that the rationalisation exercise avoid creating inequities between the genuinely affluent and those merely trying to maintain basic living standards.
He said that incorporating additional factors such as household size, number of dependents and regional cost-of-living variations would strengthen both the fairness and effectiveness of the subsidy programme.
“From an efficiency standpoint, it ensures the subsidy is directed to those with the highest marginal utility for the money, that is, those who need it most. From an equity standpoint, it acknowledges that a given income provides a vastly different standard of living for a single individual in a rural area compared to a family of five in Kuala Lumpur,” he explained.
“While layering these factors into the assessment algorithm increases administrative complexity and cost, it is the only method to approach true distributive justice and prevent the unintended exclusion of vulnerable households that the policy ostensibly aims to protect,” he said.
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