Malaysians Brace Themselves as Government Cuts Key Subsidies

Mahi Ramakrishnan
January 08,2014

KUALA LUMPUR — Malaysian authorities are slashing subsidies on fuel, natural gas and sugar in a bid to get government debt under control. As the steps take a hit on consumers’ finances, critics say authorities should instead target government waste and graft.

The Malaysian government has been running deficits since the Asian financial crisis in 1998. Late last year, it took its first major step to reign in spending by slashing huge fuel subsidies.


People, like mother of two Chan Sook Peng, say that prices of essential goods have already shot up since then.

“Actually I am very worried. We just try to go out less, eat out less, cook more at home, pull all our plugs from the power source just to try and save our electricity. We try to save our water,” says Peng.

Malaysians are bracing themselves for worse to come.

The government has said it will introduce a long-delayed Goods and Services Tax starting next year. And it recently announced increases to highway tolls, electricity tariffs and public transportation fares. Economist Yeah Kim Leng of the Rating Agency of Malaysia supports the moves.

“Its important that the government rationalize the subsidies because it now makes up more than half the fiscal deficit and that in itself is not sustainable,” said Leng.

Only around one tenth of Malaysia’s working population actually pays income tax. And the government relies on the royalties from the state oil company, Petronas, for up to 40 percent of its revenue.

Some distribution of the burden is therefore needed, says Leng.

“This so-called overreliance on the national oil company is actually not prudent. So that's the basis for actually implementing the long-awaited GST,” says Leng.

The political opposition says it is not against trimming subsidies or other spending cuts in principle.

But opposition politician Rafizi Ramli of the People’s Justice Party points to the government’s own auditor general’s reports, which he says show a huge waste of public funds year after year.

“No matter how many new taxes you implement, no matter how [many] new stream[s] of income you bring to the government, unless there is a discipline to get rid of wastages [waste], corruption, to re-look at the procurement practices of the country, it's like pouring money into a black hole,” says Ramli.

International surveys indicate Malaysia is comparatively less corrupt than other countries in Southeast Asia. Just before the new year, Prime Minister Najib Razak did announce some cuts to spending allowances for Members of Parliament and civil servants.

But busy Malaysian mother Chan Sook Peng say those cuts are nothing compared to the sacrifices people like her will have to make just to get by.