Maybank Research (Maybank) expects Budget 2025 to focus on several areas of operating expenditure for rationalisation and optimisation especially following the projected increase in the costs of civil service salaries and the knock-on effect of civil service pensions, and in tandem with the 2025 Pre-Budget Statement regarding “better management of public expenditure”.

The government is likely to have incurred savings in RON95 petrol subsidy in recent months, notably in July-Sep 2024, following the lower crude oil price and stronger Ringgit vs US Dollar. 

The impact on unsubsidised RON95 price can be gleaned from the recent declines in the prices of unsubsidized RON97 and diesel.

“Given our forecasts of lower average crude oil price next year, there should be further savings in RON95 petrol subsidy costs without adjusting the current subsidised price of MYR2.05 per litre, ceteris paribus,” said Maybank. 

Additional savings will be derived from what Maybank expects to be moderate adjustment in the subsidised RON95 prices as the government will be under less pressure to go aggressive in RON95 petrol subsidy adjustment given the narrower gap now between the subsidised and market prices compared with what it was in the first half of 2024 when crude oil prices were higher and Ringgit was weaker. 

The question is more of the “timing, quantum and mechanics” rather than “to do or not to do”. 

Maybank inflation rate forecasts for 2025 of between +2.5% and +3.0% factors in the assumption of between 10 sen to 20 sen per litre increase in RON95 petrol price, coupled with cash offset/handout to the lower income groups via existing system that is Sumbangan Tunai Rahmah. 

Therefore, Maybank is not assuming a RON95 petrol subsidy rationalisation process or mechanism that is a “carbon copy” of the targeted diesel subsidy system in force since 10 June 2024 that involved multi-tier diesel prices that is:

1/ Subsidised diesel price at MYR2.15 per litre for Sabah, Sarawak & Labuan as well as for eligible goods transport and logistic vehicles under the Fleet Card Programme. 

2/ MYR1.88 per litre for 10 types of land public transport, MYR1.65 per litre for the fishery industry, and unsubsidised diesel price (currently at MYR2.95 per litre).

And a separate, new mechanism of cash offset/handout such as: 

“Budi Individu” that is a direct cash subsidy of MYR200 per month to Malaysians with annual individual or joint income of MYR100,000 per annum or below, who own non-luxury diesel-powered personal vehicles under 10 years old with active road tax registered with the Road Transport Department.

“Budi Agri-Komoditi” thats is a direct cash subsidy of MYR200 per month for farmers or smallholders recognised by relevant agencies under the Ministry of Agriculture & Food Security or the Ministry of Plantation & Commodities, with an annual turnover of RM50,000 to RM300,000 from farming or commodity production.

Currently the government provides “incentive” to local sugar producers from Nov 2023 to ensure adequate supplies of refined white sugar (RWS) to households and micro entrepreneurs. This is at the cost of MYR42mil a month or MYR0.5bil per annum. 

The “subsidy” is meant to be a temporary measure until the government finalises the new price mechanism for RWS. 

“We expect this to materialise in 2025, hence the possible ending of the “sugar subsidy” under Budget 2025,” said Maybank.

In addition, the Minister of Agriculture and Food Security mentioned that the government is considering ending the egg subsidy that is costing MYR100mil a month. 

Further recalibrating other forms of subsidies (for example, education) to exclude highest income groups is another area of subsidy rationalisation that can be expected to continue in 2025, following the targeted electricity subsidy that excluded high-income domestic users based on monthly power consumption. 

The hint on this was dropped by the Prime Minister, also the Finance Minister, over his remarks that students from rich families and high-income households should no longer benefit from subsidised education when they are admitted and enrolled into publicly-funded full-boarding schools and local universities. – Oct 14, 2024 

https://focusmalaysia.my/budget-2025-to-enhance-optimisation-rationalisation-following-projected-civil-salary-raise/