Malaysia: action to prevent fuel subsidy abuse

For years, Singapore has enforced a ruling that cars registered in the city state have to fill their tanks to at least three quarters full before crossing into Malaysia. But there's a roaring trade, both underground in Singapore and quite open in Johor Bahru, Malaysia's border town, in devices to fake the reading on a car's fuel gauge.

And whilst having such a device is illegal in Singapore, as there is no requirement to measure the fuel of cars in Malaysia, there is no equivalent office in Malaysia.

But things might be going to change in the next phase of Malaysia's war on cars visiting Malaysia just for cheap fuel.

Already Malaysia has introduced measures - starting in force in the border region with Thailand and shortly to be applied in the Singapore border region - to reduce the incentives: Thai and Singaporean registered vehicles will not be allowed to fill up at filling stations within 50 kilometres of the border.

The idea, that a 100km round trip and the time involved will reduce the incentives is probably sound. The Singapore - Malaysia crossing has become a nightmare in recent months as a huge security increase after the escape of MAS Selamat, a suspected terrorist, has slowed the crossing into Singapore to a crawl and as the work for the new Customs and Immigration terminal on the Malaysian side has restricted the road width on the approach to the existing service.

Malaysia is already considering what to do about its fuel subsidies. A number of prominent politicians have said that the country cannot afford to continue the subsidies. But all agree that the subsidies cannot simply be abolished - to do so would result in a huge and sudden increase in the cost of living, in a country where people's living standards are rising but often based on credit. It's a fragile mix.

Malaysia keeps its cost of living low by strict price control on many staples including rice and other food products and even some construction products. For many, the margins are already tight as the price of the commodities has increased significantly but the retail prices have been capped. If transport costs were to rapidly rise, then there is no alternative but for those price controlled items to be increased accordingly.

A recent 10 sen increase in the price of fuel saw hawker stalls increase the price of their products, and uncontrolled price articles have increased significantly even in open markets.

Domestic Trade Minister Shahrir Samad said this week that the fuel subsidy will cost Malaysia an astounding USD17.3 thousand million USD. How astounding is that? The population is just 23 million.

There are two sides to that equation: first, what could the government do if it had an additional USD17.3 milliard in its pocket? The answer is "a lot." The second is, how can a population which includes a substantial number of people living on about USD1,000 per month find that amount of money?

The government plans to try to find a mechanism to direct subsidies to those who need them. Whether that translates into a means-tested benefit remains to be seen. As Malaysia has a substantial number of cash-based businesses, assessing means will be difficult and fraught with the risks of abuse.

Already Malaysia taxes cars according to their engine size and once above 2 litres, the tax increases exponentially.

It is those who have been weaned off their motorcycles and into inexpensive small cars which will be hit hardest by any sudden increase in fuel prices. Many already live economically marginal lives, although large families are a drain on the resources of the poor in Malaysia as much as they are anywhere else.

Coupled with concerns that food costs must rise (world market prices of rice have risen more than 75% in the past year and in the Philippines a bag of rice that cost 1100 a year ago now costs 1600. Malaysia is anxious to avoid similar problems.