The inescapable fact is that fuel subsidy will eventually have to be scrapped as it is economically untenable in the long run. The question is when? Our answer is now is the right time as crude oil price is tumbling.
The government recently announced that it in mid-2015, it will be implementing a new petrol subsidy rationalization programme as part of its plan to eventually scrap fuel subsidy.
Under the proposed three- tiered mechanism, individuals earning less than RM5,000 a month will be eligible for a full subsidy. Those earning between RM5,000 and RM10,000 would get a partial subsidy and those earning more than RM10,000 would pay the market price.
Many have been quick to point out the loopholes in the proposed tier system and question whether the scheme is workable in terms of the costs involved and its objective.
The price of crude oil has been sharply declining in recent months, tumbling from USD115 per barrel in June 2014 to a four-year low of US$80.60. Oil analysts predict a worldwide supply glut which means that prices may tumble further in the future.
This creates the perfect opportunity for government to dismantle the fuel subsidy altogether. Removing it at a time of plummeting price will impose less economic hardship for the people.
The stark reality is that the country cannot afford to keep footing the enormous cost of fuel subsidy and that fuel is a depleting natural resource. Fuel at market price will also encourage less wastage and help promote alternative energy uses.
Press Release, 5th November 2014