Government mulls phased subsidy cuts

The government is to discuss plans to cut its subsidy bill at a Cabinet meeting on Wednesday, with cuts likely to be phased in over a period of five years, three government officials told Reuters.

The aim is to reduce the country’s bill from food, petrol, electricity and gas subsidies that official figures show had cost RM24.5 billion in 2009, or 15.3 per cent of total federal government spending.

The government think-tank charged with designing the subsidy cuts has put the total cost of subsidies at RM74 billion annually, although that includes social welfare, health and education transfers, according to adverts placed in newspapers.

The proposals presented by the think-tank had envisaged subsidy cuts starting in June, with price rises coming every six months over a five year timeframe, the sources said.

“The feeling here is that the June 1 time-frame may be too soon. It has to be done moderately and in stages,” said a government source who has seen the proposals.

The sources declined to be identified because of the sensitivity of the issue.

The effect of price rises is likely to be offset by support payments for poorer people, the sources said.

“One issue of concern is whether to cut all in one go, or sector by sector, and the timeline,” said a second government official. — Reuters