Malaysia assesses potential savings from voluntary fuel subsidy opt-outs

Traders Union
All News
Economic Data
Fuel subsidy savings

Highlights

Malaysia's fuel subsidies are projected to rise to RM40 billion in 2024, as Brent crude prices exceed U.S.$100 a barrel amid conflict in the Middle East.
If 1.5 million people opted out of the Budi95 subsidy, matching the number who did not claim Sara, Putrajaya could potentially save between RM2.34 billion and RM14.2 billion a year, depending on fuel consumption.
Budget 2027 allocates RM2.6 billion to the Sara Madani programme, which is expected to benefit up to 13 million Malaysians, with the one-off aid increasing to RM200 per person in 2027.

This article was translated from the original. Read the original version by our correspondent here.

Projected savings compared with Sara aid

As reported by The Edge Malaysia, the discussion was sparked after Treasury secretary-general Tan Sri Johan Merican responded to a question at the Malaysian Economic Association's post-Budget 2027 forum last week about extending the RM200 one-off Sumbangan Asas Rahmah payment, Sara, to those who do not need assistance by asking whether Malaysians would be willing to give up their fuel subsidies.

In 2025, around 4% of eligible Malaysians aged 18 and above did not claim the RM100 one-off Sara payment. Of the RM2.1 billion allocation, RM150 million was distributed to support shelter residents, students with special needs and patients, and the figures suggest that around 1.5 million people did not claim Sara in 2025.

If the same number of people do not claim their Sara credits by 31 Dec for 2026, the amount available for redistribution could remain at a similar level. In 2027, when the one-off payment rises to RM200 per person, that amount could double to RM300 million, bringing the potential redistribution to around RM600 million over three years if the pattern does not change.

Under Budget 2027, Malaysian adults who do not receive monthly Sumbangan Tunai Rahmah, STR, assistance will receive RM200 in Sara Madani next year: RM100 before Hari Raya Aidilfitri in March and another RM100 to mark the country's 70th National Day in August. With around nine million STR recipients, the programme is expected to benefit up to 13 million Malaysians and cost approximately RM2.6 billion, based on a rough estimate.

Implications for the country's subsidy costs

Fuel subsidies, initially expected to cost RM15 billion, are now projected to rise to RM40 billion this year after conflict in the Middle East pushed Brent crude prices above U.S.$100 a barrel. Budget 2027 also allocates RM40 billion for fuel subsidies, maintaining significant pressure on public finances.

Based on an average monthly consumption of 83 litres previously cited by Johan, the RON95 subsidy at the current rate of RM2.63 per litre amounts to RM218.29 a month or RM2,619.48 a year for a typical driver. If the 1.5 million people who did not claim Sara in 2025 also gave up their Budi95 subsidy by not using their MyKad at the pump, Putrajaya could potentially save RM3.93 billion a year.

Using the lower year-to-date, YTD, average subsidy of RM1.57 per litre, the subsidy for an average driver comes to RM130.31 a month or RM1,563.72 a year. On that basis, savings would still reach RM2.34 billion a year for 1.5 million people and could rise further if their fuel consumption were higher.

At a consumption level of 200 litres a month, the RON95 subsidy at the YTD average amounts to RM314 a month or RM3,768 a year per person, while at current prices it reaches RM526 a month or RM6,312 a year. If 1.5 million people in the same group used 200 litres a month, potential savings could reach RM5.65 billion.

At the maximum limit of 300 litres a month, the subsidy at the YTD average of RM1.57 per litre amounts to RM471 a month or RM5,652 a year per user. At the current subsidy rate of RM2.63 per litre, the value could rise to RM9,468 per person a year, bringing potential savings to around RM14.2 billion for 1.5 million people—an amount close to the scale of STR and Sara spending, which increased from RM15 billion in 2026 to RM16 billion in 2027.

However, there is no way to determine whether the 1.5 million people who did not claim Sara use 83 or 300 litres of fuel a month, or whether they use RON95 at all. Johan also stressed at the forum that setting an income threshold for fuel subsidy eligibility remains difficult, given that households earning RM10,000 to RM15,000 a month in the Klang Valley may still face significant cost-of-living pressures.

In our previous coverage of Malaysia's target to reduce its fiscal deficit to below 3% of GDP, we explained how fiscal consolidation depends on targeted subsidy reforms and digitalisation to improve public spending efficiency while protecting vulnerable groups. We also highlighted how high subsidy costs, oil price volatility and social spending pressures could affect the deficit-reduction trajectory and the government's debt position.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.