DATUK SERI (DR.) ENG WEI CHUN – The Bright Future of Malaysia: It Starts with You
Since 1974, Malaysia has been designated as a developing country by the United Nations, and it has made substantial strides in economic and social development, distinguishing itself as a top performer among developing nations. Yet, despite these notable advancements, Malaysia has remained classified as a developing country for the past five decades and has yet to attain developed nation status. As a democratic nation, Malaysia is steadfast in its commitment to upholding and protecting human rights, particularly for its most vulnerable communities. The government has significantly enhanced the living standards of low-income groups through substantial subsidies on fuel and food, alongside improvements in education and healthcare. The fuel subsidy policy, introduced during Tun Dr. Mahathir’s tenure in the early 1970s, stood out to fulfil the afore-mentioned purposes. At that time, Malaysia enjoyed economic stability, abundant oil reserves, and relatively low vehicle ownership and fuel consumption. This policy undoubtedly bolstered Tun Dr. Mahathir’s political support and solidified his political influence. While politically motivated, the policy allowed Malaysians to enjoy gasoline at remarkably low prices, even far cheaper than those in Saudi Arabia, the world’s largest oil producer.
However, it is crucial to recognize that fuel subsidies have long been the largest item in Malaysia’s fiscal budget. In view of the challenges such as Covid-19 pandemic, the China-U.S. trade tensions, U.S. interest rate hikes, the Russia-Ukraine conflict, global economic sluggishness, and the depreciation of the Malaysian Ringgit, these hefty subsidies have placed an immense strain on national finances. Malaysia’s fiscal deficit has exceeded the EU’s safety threshold of 3% of GDP for 25 consecutive years since 1999, with the deficit rate peaking at 5% in 2023. Currently, Malaysia’s national debt stands at a staggering RM1.5 trillion, which translates to approximately RM45,455 debt per household, given a population of 33 million and an average household size of six.
Consider a hypothetical scenario where, during the 1970s, the government had prudently saved half of the subsidy funds rather than allocating them all to consumer fuel subsidies. Such savings could have provided a vital buffer against today’s fiscal pressures. If the national debt had not surged so dramatically and if our currency had not depreciated so sharply, these reserves could have fortified our economy and accelerated Malaysia’s journey towards transformation of developed nation status.
Furthermore, in developed countries, there is a greater reliance on public transportation, which is not only more economical but also reduces the overall costs associated with vehicle ownership—such as purchasing, fueling, car maintainance, car insurance and parking fee & car value depreciation. Keeping the national deficit low is essential for bolstering foreign investor confidence. Attracting foreign investment is a crucial avenue for stimulating economic activity and increasing fiscal revenue. Thus, addressing the largest subsidy expenditure—fuel subsidies—requires urgent and comprehensive reform. I firmly believe that matured and forward-thinking Malaysians will appreciate the government’s resolve to reform the fuel subsidy policy and offer unwavering support. Statistics reveal that 35% of fuel subsidies benefit the T20 (top 20% income group), while only 24% aid the B40 (bottom 40% income group). This disparity is understandable, given that the T20 group owns more vehicles and high-emission cars, while the B40 primarily relies on motorcycles or lacks transportation. The targeted diesel subsidy policy not only reallocates funds more effectively to the people with genuine needs but also curbs illegal diesel smuggling. Currently, diesel sales at fuel stations in West Malaysia have plummeted by over 30%, with reductions of 40%-50% in border areas. Clearly, this policy is better suited to target subsidies to those genuinely in need and mitigate national losses. An intriguing phenomenon was observed when the government announced the targeted diesel subsidy cut: diesel prices in Malaysia rose, and neighbouring countries followed suit. this “coincidence” somehow explained the smuggling issue, which seemed to be an international joke.
In my view, excessive subsidies are detrimental as they escalate national expenditures and debt while distorting market dynamics and fostering undue reliance on government support, thus eroding competitiveness. Eliminating fuel subsidies is a policy decision that entails multiple stakeholders’ interests and can have far-reaching impacts, particularly on lower-income groups. Therefore, it demands careful consideration and precise timing of executing the policy reform. I trust that enlightened and forward-thinking Malaysians will grasp the nuanced advantages of the targeted diesel policy and recognize its long-term benefits, despite potential short-term inconveniences. Both the public and the government must collaborate in endorsing policies that serve the greater good and long-term development, thereby laying a robust foundation for reducing the deficit and advancing towards developed nation status. I also would like to highly praise our current Prime Minister, Dato’ Seri Anwar, for his bravery and resolve in reforming the diesel subsidy policy, exemplifying his commitment to the principle of “Country First, Politics Second”.
