Treasury says subsidies to go in stages, savings used for BR1M

Treasury secretary-general Tan Sri Mohd Irwan Serigar Abdullah
Treasury secretary-general Tan Sri Mohd Irwan Serigar Abdullah

KUALA LUMPUR, Aug 29 ― Existing subsidies will be eventually eliminated, said a minister today, and the savings redistributed in the form of direct cash handouts to deserving recipients, according to a Treasury official.

Treasury secretary-general Tan Sri Mohd Irwan Serigar Abdullah described the proposed measure to do away with government subsidies as "a gradual sort of liberalisation towards the market".

Irwan noted that the current subsidies sometimes benefit those who do not deserve it, citing cheap fuel purchased by owners of multiple vehicles or vehicles with large engine capacities as an example.

"So when we rationalise subsidies, those savings we will reallocate to the public, those who deserve, in the form of BR1M and other assistance," he said, referring to the Najib administration's Bantuan Rakyat 1 Malaysia (BR1M), a cash aid for low-income households.

But Irwan also urged the public to wait for Prime Minister Datuk Seri Najib Razak to announce such economic reforms, saying that the government's Fiscal Committee will meet again next Monday.

"So the overall package, the announcement will come gradually, starting I think most probably next week," he added.

Datuk Seri Idris Jala, who was also present, reiterated the government's stand to eventually stop the use of public funds to provide subsidies for citizens.

"We are committed to the programme to rationalise subsidies," the minister in the prime minister's department said.

The scrapping of government subsidies is among a list of measures that analysts say is necessary to rein in public spending and address Malaysia's rising fiscal debt.

Analysts have also said that Putrajaya needs to introduce the controversial goods and services tax (GST) to boost its revenue and cut down on its reliance on dividends from state oil giant Petronas.

Ratings agency Fitch Ratings had in July cut its outlook on Malaysia’s A-minus sovereign debt from stable to negative, citing a lack of reform to tackle rising debt.

“Prospects for budgetary reform and fiscal consolidation to address weaknesses in the public finances have worsened since the government’s weak showing in the May 2013 general election,” Fitch had said in a statement.

“Malaysia’s public finances are its key rating weakness,” it said.

The BR1M initiative was previously criticised as a one-off measure by the government, but Najib's administration had since then given out a second round of the cash aid.

In the first round, RM500 was given to households with a monthly income of less than RM3,000 each, while BR1M 2.0 saw singles with monthly wages below RM2,000 also receiving RM250 each.

The first round of BR1M approved under Budget 2012 reportedly involve the distribution of public funds of close to RM2.16 billion to 4.3 million households, while a RM3 billion allocation approved under Budget 2013 was reportedly directed at the same 4.3 million households and 2.7 million single adults.

The Barisan Nasional (BN) coalition that Najib leads had in its Election 2013 manifesto promised to continue giving out BR1M if it is voted into power again.

It also promised to gradually increase the amount of BR1M handouts to RM1,200.