The finance ministry in Malaysia recently announced that diesel subsidies for certain groups in Peninsular Malaysia would be discontinued, resulting in an increase in diesel prices. This decision is part of a move to align diesel fuel prices with market prices. The rationalisation of diesel subsidies was first mentioned in a special address by the prime minister on May 22, where he stated that the reforms would not affect consumers in the Borneo states of Sabah and Sarawak, where the use of diesel vehicles is widespread.
In order to prevent the majority of the population from being burdened by the removal of diesel subsidies, the government has introduced measures to support businesses that utilize select commercial diesel vehicles, provide cash handouts to eligible individual owners of diesel vehicles, and offer cash aid programs such as the Budi Madani scheme. These initiatives are aimed at easing the impact of the reforms on the affected groups. Malaysia currently has some of the cheapest petrol and diesel prices globally, and the rationalisation of fuel subsidies has been a topic of discussion for almost two decades, with previous governments lacking the political will to implement such reforms until now.
The changes to diesel subsidies are part of the government’s broader efforts to restructure the country’s subsidy distribution system, following the rationalisation of subsidies for electricity tariffs and sales of chicken announced last year. These moves are expected to result in significant cost savings for the government, with estimates suggesting savings of RM4.5 billion and RM1.2 billion a year from the electricity tariffs and chicken subsidy rationalisation, respectively. The shift away from costly blanket subsidies is seen as a more targeted approach that benefits those most in need, rather than benefiting the ultra-rich and foreign nationals.
Speaking during his special address, the prime minister emphasized the importance of moving away from blanket subsidies, noting that they tend to benefit the ultra-rich and foreigners more than the local population. The reforms to diesel subsidies mark the third government initiative aimed at restructuring subsidy distribution in Malaysia, as part of a broader strategy to improve the overall efficiency of the subsidy system. The government’s decision to discontinue diesel subsidies for certain groups reflects a commitment to implementing long-awaited reforms that will align fuel prices with market rates and ensure that subsidies are targeted towards those who need them most.
