KUALA LUMPUR – Malaysia will cut back on subsidies and social assistance by excluding top earners from these benefits, Prime Minister Anwar Ibrahim said when tabling Budget 2025.
These include the rationalisation of petrol and education subsidies by moving from blanket subsidy schemes to more targeted initiatives. But the country’s larger urban households with higher incomes will be the hardest hit by this shift, experts say.
Keeping to his pledge to tax high-income earners, Datuk Seri Anwar said on Oct 18 that the government will remove fuel subsidies for RON 95, a heavily subsidised petrol, by the middle of 2025. He will also gradually reduce education subsidies for the well-heeled.
“The fact remains that foreign nationals and the wealthiest 15 per cent of consumers are enjoying 40 per cent of the RON95 petrol subsidy, valued at RM8 billion (S$2.43 billion). This RM8 billion is better directed towards improving public services such as education, healthcare and transportation,” Mr Anwar said in Parliament as he unveiled Malaysia’s fifth consecutive record budget of RM421 billion.
The RM12 billion in subsidies for the other 85 per cent of Malaysians will be maintained.
Mr Anwar also said the government will look to “gradually reduce” education subsidies for the top 15 per cent of earners. The money saved can be redirected to improve the infrastructure of government schools and public universities for the benefit of all students, he added.
Currently, he noted: “The average annual tuition fee paid by undergraduate pharmacy students is RM3,000, compared to the total cost of education, which amounts to RM30,000. This subsidy is provided regardless of family income.”
While economists have praised the move towards targeted subsidies to boost the government’s finances and redirect funding to those who need it more, they noted that Malaysia’s larger urban households with higher incomes are the most likely to be impacted when the move is implemented in 2025.
EY’s Asean tax leader Amarjeet Singh told The Straits Times that bigger urban households within the top 15 per cent of earners, specifically those earning above RM15,000, are expected to be most adversely affected by the country’s revised subsidy policies due to the escalating cost of living in city areas.
“These changes are expected to significantly influence the long-term behaviour of high-income earners, prompting them to consider more sustainable energy usage such as converting to electric vehicles,” he said.
The Anwar administration implemented targeted diesel subsidy cuts in June, a move that would save the government RM4 billion annually. The diesel subsidy cuts led to widespread dissatisfaction among the public and businesses.
The administration has already phased out other subsidies, in the form of electricity tariff adjustments and removal of price controls for chicken.
Meanwhile, the government has outlined plans to reduce subsidies and social assistance, with around RM52.6 billion allocated for this purpose in 2025, down 14.4 per cent from this year, as part of broader fiscal measures aimed at reallocating government spending.
That said, high-income earners will be in a better place than most to cope with the rollback in subsidies, said economist Patrick Tay Soo Eng of PwC Malaysia.
“High-income earners can afford to switch to electric vehicles to reduce the impact of the RON 95 subsidy removal, (and) they will still have access to PTPTN loans,” he said, referring to the National Higher Education Fund, which provides study loans to Malaysian university students that will be repaid when they start working and earning regular incomes.
Mr Tay said that high-income earners are more likely to earn higher incomes in the future, enabling them to repay the loans without much issue.
In addition to education subsidies, the government is also looking to target healthcare subsidies for top-earning Malaysians.
“High-income groups should contribute to improve healthcare services in government hospitals. The savings (from cutting subsidies for top earners) could be used to fund medical devices for poor patients and upgrade the equipment of public hospitals and clinics,” Mr Anwar said.
