Economic Report 2014/2015: Subsidies to fall to RM37.7 billion or 16.9% of opex in 2015

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THE federal government’s subsidy bill is expected to drop to RM37.7billion in 2015, about 7.1% lower than 2014’s revised estimate of RM40.6 billion and 13.1% below the RM43.3 billion spent in 2013, according to the Economic Report 2014/2015.

As a percentage of the federal government’s total expenditure, subsidies are expected to account for 18.3% of total spending in 2014 and 16.9% in 2015. While these are lower compared with 20.5% in 2013, subsidies remain the second largest operating expenditure for the federal government after emoluments (29.6%) in 2014. In 2015, however, subsidies are expected to be relegated to third spot after emoluments (29.4%) and supplies and services (17.1%), the report reads.

According to notes provided in the report, however, figures for 2015 are “budget estimates, excluding 2015 budget measures” without further elaboration.

In any case, the report admits that subsidy allocation “is expected to remain large” this year. The bulk of subsidy payments are for fuel and cash assistance; social welfare programmes; essential food items such as cooking oil, rice and flour; toll compensation; interest rate differential; educational assistance; and, for incentives for farmers and fishermen to increase food production and fish landing.

Despite the recent 20 sen per litre fuel subsidy cut, the amount needed for fuel subsidies and cash assistance alone are estimated at RM23.2 billion in 2014, about 57.2% of the total subsidy allocation.

Nonetheless, fuel subsidy payment is expected to fall in tandem with moderating crude oil prices, which are forecast to average US$110 (RM357.9) per barrel in 2014 compared with US$115 per barrel in 2013. The implementation of subsidy rationalisation will also lower expenses on this front.

A previous 20 sen per litre reduction in subsidy for RON 95 petrol and diesel was said to have resulted in annual saving of RM4 billion while the removal of sugar subsidy had reportedly saved the government some RM480 million.

“The government will gradually undertake the subsidy rationalisation measures to ensure a more targeted and efficient subsidy, minimise leakages and curb smuggling activities. Savings from subsidy rationalisation will be used to finance more productive programmes and projects for the benefit of the rakyat,” the report says.

Among other things, the government expanded the group eligible for the Bantuan Rakyat 1Malaysia (BR1M) from singles earning below RM3,000 to include households earning between RM3,000 and RM4,000 per month. The programme counted 6.9 million recipients in 2014 with a cash disbursement of RM3.6 billion, the report adds. In addition, the government continued the school assistance programme of RM100 for all primary and secondary students, as well as book vouchers worth RM250 to students at higher learning institutions.

This article first appeared in The Edge Malaysia Weekly, on October 13 - 19, 2014.