In Malaysia, voters turn to the ballot to rebuff proposed petrol subsidy cuts

Bridget Welsh, an honorary research associate with the University of Nottingham’s Asia Research Institute in Malaysia, said the subsidy cuts and economy clearly mattered to voters – as did how the cuts were implemented “without stakeholder engagement or appreciation of the negative impact on middle-class voters”.

Malaysia’s uneven pandemic recovery has left millions of private-sector workers dipping into their retirement savings to cover living expenses, after changes to the country’s mandatory savings fund allowed billions of ringgit to be withdrawn in a matter of weeks.
Protesters hold placards outside Malaysian Prime Minister Anwar Ibrahim’s official residence in Putrajaya, during a protest against his administration late last month. Photo: EPA-EFE

The government has faced accusations of failing to rein in prices, which the opposition say was exacerbated by cuts to subsidies for utilities, chicken, and most recently, the removal of broad diesel subsidies.

Penang Chief Minister Chow Kon Yeow attributed the government’s loss in Sungai Bakap to voter unhappiness over rising living costs and the push to slash the country’s ballooning subsidy bill, which cost around 80 billion ringgit (US$17 billion) last year, according to official estimates.

This was despite the delayed removal of blanket diesel subsidies, which was designed “in such a manner as to minimise its negative political effects”, said Brian Tan, Southeast Asia economist with British investment bank Barclays.

Diesel prices shot up by around 50 per cent to 3.35 ringgit (71 US cents) per litre overnight on June 10, when the blanket subsidies were replaced with a targeted system intended to curb rampant smuggling and save the government about 4 billion ringgit annually.

Prime Minister Anwar said last week that the government had yet to prepare a policy paper on cutting petrol subsidies, telling parliament they first want to gauge the effects of the diesel subsidy restructuring and gather public feedback before deciding on further cuts.

Barclays’ Tan said in a research note on Monday that “the government faces significant political challenges” in increasing the price of the RON95 grade of petrol that is currently subsidised.

A taxi driver waits for passengers amid heavy traffic in the Bukit Bintang area of Kuala Lumpur. Anwar’s government faces “significant political challenges” to slashing petrol subsidies, observers say. Photo: Bloomberg

But retaining petrol subsidies would complicate the government’s efforts to narrow its fiscal deficit from 5 per cent to 4.3 per cent of gross domestic product this year.

The government has cited its 1.5 trillion ringgit (US$318 billion) debt pile, partially blamed on the 1MDB scandal, as a key factor driving the need for subsidy cuts.

Malaysia expert James Chin of the University of Tasmania warned that the government has failed to adequately shield the poor from the fallout of the diesel subsidy cut, and expects the situation to worsen if it proceeds with plans to slash petrol subsidies.

While the reforms look good “on paper … somehow on the ground it is not working”, he said

If they don’t iron out these issues … [it] will only lead to a huge backlash

James Chin, Malaysia expert

“If they don’t iron out these issues” any further removal of subsidies “will only lead to a huge backlash,” Chin told This Week in Asia.

“Of course, it means bad news for the economy, but politically it is just not doable.”

Analyst Welsh noted the sharp spike in diesel prices had triggered broad public opposition, limiting the government’s ability to push ahead with much-needed subsidy cuts.

She said the government needed to rethink its fuel subsidy reform plan, focusing on more gradual implementation to provide sufficient support for low-income and middle-class households, while also handling public criticism “more respectfully”.

“It has been couched as helping the poor but the poor don’t see the benefits and the middle class impacted by the cuts feel targeted. They also see no benefits,” Welsh said.

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