The Government’s upcoming targeted fuel subsidy programme is intended to reduce subsidy rot, channelling aid to those who actually need them. However, the plan could cause a fraction of the M40 group to be cut off from subsidies, according to a sector update report published by Kenanga Research.
First announced in May this year, the government plans to implement the targeted subsidy programme starting early next year to replace the existing blanket subsidy. It’s expected to be unveiled during the tabling of Budget 2024, which will be held on October 13.
The new targeted subsidy will be implemented based on household net income data tallied on the National Central Database (PADU), which will integrate data from government agencies such as the inland revenue board (LHDN) and the road transport department (JPJ).
Fuel subsidies will then be focused on the lower income group as determined PADU, particularly the B40 and M40 groups, as opposed to the existing blanket subsidy that is said to have benefited the wealthier T20 group. For context, 35% of the RM77.3 billion fuel subsidies disbursed in 2022 went to the higher income group, Kenanga said.
Despite this, Kenanga Research continues to believe that a portion of the M40 group will be excluded from the targeted fuel subsidy system, resulting in a dip in disposable income and spending power among those affected.
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Kenanga Research stated in the report, “We believe part of the M40 group may also be cut off, resulting in reduced spending power of this group of consumers. We therefore turn cautious on mid-market retailers.”
However, the research arm says that the B40 group will continue to fully benefit from the fuel subsidy, and as such would not see a direct reduction in spending power as a result of the new targeted subsidy policy. “Additionally, the group will continue to receive financial assistance from the government, including cash handouts,” it added.
Thus far, the government has yet to demonstrate how the targeted subsidy programme will be implemented. Various pipelines have been proposed, including the use of a special identification system, or handing out targeted subsidies via the MySejahtera mobile application.
