KUALA LUMPUR – Malaysia’s move towards a more targeted RON95 subsidy is not only aimed at trimming government spending but also raises concerns about the impact on household consumption, economists said.
Economist and consultant at Global Asia Consulting, Samirul Ariff Othman, said strict income thresholds could suppress consumer spending if implemented without care.
“Yes, if designed badly. If middle-income households suddenly face higher fuel costs, they may cut discretionary spending. That can affect retail, food services and small businesses,” he told Scoop.
The warning comes as Putrajaya continues refining its subsidy rationalisation plans, with PADU expected to play a key role in determining eligibility.
Samirul said the focus should no longer be whether subsidies should be targeted, but how to do so fairly, without creating resentment.
“A fair RON95 subsidy system should not rely on monthly income alone,” he said, adding that it should combine household income, household size, location, vehicle dependency and actual fuel consumption.
He explained that a household earning RM12,000 in Kuala Lumpur with children, loans, and two working adults may not be financially comfortable compared to smaller households elsewhere.
Rather than a blunt T20 cut-off, Samirul recommended a broader formula that accounts for disposable income, family size, location and actual transport costs.
“So the question should not be: ‘Are you T20?’ It should be: ‘What is your real transport burden after family size, location and income are considered?’” he said.
He also warned that hard cut-offs could create “cliff effects,” where households lose substantial benefits for earning just above the threshold.
A progressive tapering system, he suggested, would allow lower-income groups to receive full subsidies, middle-income households partial subsidies, and higher-income earners a gradual move towards market pricing.
“This is fairer and politically easier to defend,” he said.
Geography, he added, must also factor into the system. Urban households in Kuala Lumpur, Penang, and Johor Bahru may earn more on paper but face higher costs for rent, tolls, parking, and childcare. Rural households, by contrast, often rely heavily on vehicles due to weaker public transport.
“Subsidy reform itself is not necessarily harmful to the economy if done carefully,” Samirul said. “But if reform is gradual, predictable and paired with cash transfers or tax relief, the macroeconomic impact can be managed. The objective should be fiscal discipline without demand shock.”
He added that public trust would ultimately determine the success of any rationalisation.
“People will accept reform if they believe three things: The rich are not gaming the system. The middle class is not being punished. The savings are used transparently for public benefit,” he said, warning that without transparency, targeted subsidies risk being seen as selective punishment rather than necessary fiscal reform.
Meanwhile, chief executive officer of the Centre for Market Education, Carmelo Ferlito, proposed a market-based approach to fuel subsidies.
“My proposal is that the government should allow goods and services – included petrol – to be provided at market prices, while assisting lower-income households through purpose-specific vouchers calibrated according to different income groups,” he said.
Ferlito argued that support should not rely solely on income, as households with similar earnings may have vastly different living conditions and transport needs.
“Income is an important indicator, but it is not sufficient to capture real household needs,” he said. Policy should also account for “expenditure patterns, consumption needs, household size, commuting distance, regional differences and the specific circumstances faced by different individuals and families.”
“Petrol should be sold at one market price for everyone, while assistance should be given separately to those who qualify for support,” he said, noting that transferable vouchers could allow aid to naturally flow to households with greater fuel needs.
“This mechanism would therefore improve both efficiency and fairness. It would avoid the distortions created by multiple pump prices, reduce opportunities for abuse and arbitrage at petrol stations, and allow assistance to follow actual needs rather than bureaucratic assumptions,” he added.
However, Ferlito stressed that vouchers should only be a transitional measure.
“However, vouchers should not become a permanent substitute for deeper reform. They should be regarded as a transitional instrument within a broader strategy of market liberalisation,” he said, adding that the long-term goal should involve stronger competition, reduced state intervention, and structural economic reforms.
Earlier, Prime Minister Anwar Ibrahim said the government was reviewing the RON95 fuel subsidy mechanism, or BUDI95, which is currently also enjoyed by higher-income earners. The review follows calls for the subsidy to better support lower and middle-income groups amid rising global fuel prices driven by the Iran conflict. - May 11, 2026
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