It’s about time (excerpt):
PUTRAJAYA: The price of RON95 petrol and diesel has been increased by 20 sen, as one of the measures to rationalise subsidies by the Government to reduce the country’s fiscal deficit.
Prime Minister Datuk Seri Najib Tun Razak announced the decision, saying that it would save the Government RM1.1bil from September to December this year and RM3.3bil annually.
Before the revision, the price for RON95 was RM1.90 per litre and RM1.80 for diesel. The [sic} price increase for RON95 was in 2010.
Let’s put this into perspective shall we?
That 20 sen cut in the subsidy is a 10% increase in the transportation fuel bill. But the petrol bill for the average Malaysian household is around just 9% of annual expenditure (actually 8.77%). The actual annual toll on household budgets is therefore just 1% per annum.
But of course, no household is “average” – mine certainly isn’t. The subsidy cut will disproportionately effect higher income households, not lower income households which spend a lot less on transportation (15.9% overall versus 12.3% for households earning less than RM3k per month). Strangely enough, rural households will also suffer more than urban households (slightly higher portion of transport costs).
To balance the distributional books even more, the annual savings from the 20sen subsidy cut is enough to almost double next year’s BR1M payout, which would more than compensate lower income households for the higher fuel burden.
This is almost precisely the kind of exit scenario I’ve been envisioning for petrol subsidies, though I would have been a bit more diligent about signalling the policy intent and timetable beforehand. Surprising the voting public is a bad idea, as the Government learned in 2008.
As to why cut and why now, average global crude oil prices jumped 5% in the last month alone, and are 15% higher over a year ago. That’s well above the average the government was planning for in this year’s budget – if the deficit target was to be met, something had to give.