RON95 Subsidy Rationalisation: A Necessary Fiscal Reform or a New Burden on Ordinary Malaysians?

In June 2024, Malaysia broke a taboo that had held for decades.

For the first time since broad fuel subsidies were entrenched in the 1970s, the government introduced a system that distinguishes who qualifies for subsidised petrol and who does not. RON95 at RM2.05 per litre remains for eligible households. For everyone else, market price applies. ¹

This reform did not arrive without context. In 2022, Malaysia's bill for fuel subsidies and price controls reached RM80.7 billion — equivalent to 4.6% of GDP — driven by post-pandemic crude oil price spikes. ² Petronas alone absorbed RM47.3 billion of that burden, a record high in the company's history. ³

The Short History of Burned Money#

From Windfall to Liability#

Malaysia's fuel subsidies began as a product of oil prosperity: when Petronas was established in 1974, petroleum revenues made it possible to hold fuel prices well below market rates as a "development dividend" for the population. ⁴

The problem emerged when global crude oil prices became volatile — subsidy costs tracked global markets, not the government budget. When Brent crude reached post-COVID highs in 2021–2022, Malaysia's subsidy bill exploded. ³

Who Was Getting What#

Consistent research finds that general fuel subsidies are regressive in absolute value: higher-income households, which own more vehicles and drive further, receive more ringgit in subsidy benefit than low-income households. ^{5 4}

The World Bank found that the top 40% of Malaysian households captured approximately 70% of fuel subsidy benefits. ⁵ This does not mean subsidies provide no help to the poor — it means the same public money could help them more effectively if delivered directly.

Side A: End Universal Subsidies#

Argument 1: Public Money, Wrong Distribution#

When the government spent RM80.7 billion on subsidies in 2022, ² not all of it reached those who needed it most. It went to every vehicle owner — including luxury car owners, company car drivers, and high-salary professionals.

The STR (Sumbangan Tunai Rahmah) cash transfer programme that partially replaced subsidies targets 8.7 million B40 recipients with RM700–RM1,000 per year. ⁶ This is more precisely targeted than blanket subsidies whose benefits "leak" to those who do not need government support.

Argument 2: Long-Term Fiscal Sustainability#

At 2022 spending rates, fuel subsidies consumed nearly half the federal government's total operating expenditure. Sustaining this pace means less money for public hospitals, schools, infrastructure, and anti-poverty programmes. ^{2 5}

The World Bank's Malaysia Economic Monitor notes that Malaysia needs to increase social spending to achieve high-income status, but its fiscal capacity is constrained while blanket subsidies absorb so much public expenditure. ⁵

Argument 3: Large-Engine Drivers Are Not the Target Group#

RON95 subsidies are calculated per litre — meaning the owner of a 2,500cc car filling a 70-litre tank receives more subsidy value than a 110cc motorcycle rider filling 4 litres. Who actually needs the support more? ⁴

Targeting subsidies more precisely allows the government to value low-capacity vehicles — more commonly used by B40 households — without financing the fuel consumption of those who can afford market rates. ¹

Side B: The Ripple Effect Is Too Large#

Argument 1: Inflation Through the Supply Chain#

Petrol is not only used for commuting. Every lorry delivering vegetables to the wet market, every delivery van supplying grocery stores, every taxi bringing patients to hospital — all depend on RON95. ⁷

When petrol costs rise, it translates into higher costs at the transport, supply, and retail levels. Reports found fresh food prices in the Klang Valley rose between 5–15% in the months following rationalisation. ⁷ That increase is not visible at the pump — but it is felt at the dinner table.

Argument 2: The M40 Is Caught in a Policy Gap#

The government designed STR for the B40. But the M40 — households earning between RM4,850 and RM10,970 per month ⁸ — faces a dilemma: they earn too much to receive full STR benefits, but too little to comfortably absorb rising costs. ⁹

For M40 households living far from bus stops and LRT stations, a car is not a luxury — it is a necessity. They may not own luxury vehicles, but they absolutely need petrol to get to work. ⁹

Argument 3: Targeting Mechanisms Are Imperfect#

Implementing targeted subsidies depends on updated income data, accurate vehicle registration systems, and reliable verification mechanisms. In practice, data is often outdated, STR disbursements take time, and many eligible households do not know how to enrol. ¹

Bank Negara Malaysia recorded that subsidy rationalisation contributed 0.3 to 0.6 percentage points to overall inflation in 2024. ¹⁰ The actual impact may be higher for specific households depending on their location and employment type.

Argument 4: Hidden Administrative Costs#

A targeted subsidy system requires more complex infrastructure than a universal one: recipient databases, vehicle verification systems, cash payment channels, and complaints mechanisms. All of this has costs — rarely accounted for in the "savings" figures governments announce. ⁴

Where Things Stand: 2026#

The Madani government has maintained the targeted approach. RON95 at RM2.05 per litre remains for eligible households; those outside eligibility pay market prices. ¹¹

Bank Negara reports inflation pressure as "manageable and temporary" — overall inflation remained below 3% for most of 2024–2025. ¹⁰ But critics argue aggregate figures mask the uneven burden: food and transport inflation cuts harder for households that spend a larger share of income on necessities.

The open question: how long can the government sustain RM2.05 for eligible households if global crude prices rise again? And if eligibility thresholds are not adjusted for inflation, will M40 households gradually be reclassified as "ineligible" without a formal policy decision?