KUCHING: The government should consider market prices at the pump for everyone, and distribute fuel vouchers to the lower-income segments.
Centre for Market Education (CME) economist Carmelo Ferlito said this would allow beneficiaries in need of the subsidy to monetise by selling excess vouchers to those who need them more.
“Although not perfect, implementing a voucher system can potentially push in the right direction compared to blanket subsidies, which can be distortionary and regressive in nature, leading to a misallocation of resources and disproportionately affecting the poor,” he told New Sarawak Tribune today.
However, he said it is important to ensure that the subsidies are genuinely received by those in need.
“I agree that discussing targeted subsidies is important, as it is an idea that has generally garnered a lot of consensus within the scientific community.
“Targeted subsidies have been recognised as a more effective approach in providing assistance to specific individuals or groups who are in genuine need.
“This can be done by using a robust and transparent database to identify eligible beneficiaries,” he said.
Ferlito’s comments come amid intense calls from various quarters for the government to rationalise the fuel subsidy system.
For Universiti Malaysia Sarawak (UNIMAS) economist Jerome Kueh, rationalising the fuel subsidy system is indeed necessary as part of the government’s efforts to alleviate the burden on the population, particularly the lower-income and middle-income groups.
“This is because limited resources require the government to allocate them efficiently across the market and ensure that all segments of society receive adequate support,” he said.
“In other words, relying on a blanket subsidy approach may lead to inefficiencies and potential leakage in the system, where the intended goals of assisting the lower-income and middle-income groups may not be fully realised.”
Therefore, he said, a more targeted and efficient subsidy system can better address the specific needs of those in need while optimising the utilisation of available resources.
He added that targeted subsidies are particularly relevant given the dynamic economic conditions, as they prioritise the lower-income and middle-income groups in society.
“These groups often face different financial commitments and burdens compared to the high-income group.
“Implementing a targeted fuel subsidy can help alleviate the burden on these specific groups, as they may face affordability constraints,” he said.
Conversely, he said, the high-income group is typically better equipped to absorb higher fuel prices with less reliance on subsidies.
“By implementing targeted subsidies, there is potential to mitigate income disparities in society and provide necessary support to those who need it the most,” Kueh said.
He said the emphasis on prioritising the lower-income group through targeted subsidies does not imply sidelining the high-income group, as all income levels play crucial roles in the economy.
“The primary focus is to allocate subsidies efficiently to those who are in greater need, while still recognising the importance of a diverse and inclusive economy,” he added.
He agreed with Ferlito that the effectiveness of targeted subsidies is heavily dependent on the validity and accuracy of the established database.
