Economists Back Two-Tier Pricing System for RON95 Fuel Subsidy
PETALING JAYA: Several economists have voiced their support for the two-tier pricing mechanism for the RON95 petrol subsidy, saying it trumps providing the people with cash assistance.
Two-Tier Pricing System: A Well-Structured Approach
Universiti Teknologi Mara’s Tan Peck Leong said the system ensures that only eligible individuals have access to subsidised fuel while minimising financial leakage to higher-income groups, making it an effective way to implement the RON95 fuel subsidies. "A well-structured two-tiered pricing model, supported by MyKad or e-wallet verification, can help to streamline subsidy distribution while minimising operational disruptions," he told FMT.
Efficient and Secure
He said using MyKad and e-wallets is more efficient and secure because it reduces administrative costs, minimises fraud, facilitates real-time verification at the pump, and prevents misuse of cash subsidies for purchases other than fuel. "With MyKad or an e-wallet system, individuals receive their subsidies at the point of purchase, ensuring that only those who are eligible benefit. This also enables the government to introduce a subsidy cap, ensuring better control of expenditure while providing support to those who need it most," he added.
Main Challenge: Ensuring Eligibility
For the government, Tan said the main challenge is to ensure that it has accurate and up-to-date household income data to effectively determine eligibility for the fuel subsidy.
Economist’s View: Tiered Pricing is the Best Approach
Economist Geoffrey Williams said tiered pricing is by far the best approach for implementing the targeted RON95 subsidies, adding that "other methods are flawed." He said tiered pricing would allow subsidised purchases for small volumes and non-subsidised purchases for large volumes. This approach works well for electricity subsidies and can be equally effective and efficient for petrol.
Concerns Over MyKad and E-Wallets
However, he disagreed with the decision to use MyKad or other forms of identification for verification, pointing out that it could lead to fraud. "The MyKad and e-wallets can be cloned, sold or traded to get the subsidies. The simpler method is to charge subsidised prices in low volumes and remove the subsidy in stages for higher volumes sold at point of sale," he said.
Tiered System Better for Managing Inflation
Williams said a tiered pricing system may be better for handling inflation, especially if it is staggered over multiple levels or introduced slowly over time. "This is because it does not introduce the price change across the board and can be spread out," he added.
Preventing Inflationary Pressure
Tan said the key to preventing inflationary pressure is to ensure that subsidy disbursement is immediate or occurs within a month and is well-communicated to businesses and consumers to prevent unnecessary price increases.
Conclusion
The two-tier pricing system for RON95 fuel subsidies is a well-structured approach that ensures only eligible individuals benefit while minimising financial leakage to higher-income groups. While some economists have raised concerns over the use of MyKad and e-wallets for verification, the system has the potential to be an effective and efficient way to implement the targeted fuel subsidies.
Frequently Asked Questions
Q: What is the two-tier pricing system for RON95 fuel subsidies?
A: The system allows for two prices at petrol stations – one subsidised and one non-subsidised – using methods such as MyKad or e-wallets for verification.
Q: How does the two-tier pricing system work?
A: The system allows for subsidised purchases for small volumes and non-subsidised purchases for large volumes.
Q: Is the two-tier pricing system effective in preventing inflationary pressure?
A: Yes, the system can help prevent inflationary pressure by ensuring that subsidy disbursement is immediate or occurs within a month and is well-communicated to businesses and consumers.