Datuk Seri Najib Razak broke through the psychological barrier of not slashing subsidies today when announcing a 20-sen increase for both RON95 petrol and diesel, setting the stage for new taxes and other price hikes.
The move also suggests Putrajaya has concerns over revenue and likelihood of the country being punished by ratings agencies and foreign investors if no attempt is made to tackle structural problems, such as the high rate of subsidies.
Among other moves being hinted at are the introduction of the goods and services tax (GST), and reforms in the electricity tariffs.
Today, the Prime Minister personally announced that the price of RON95 and diesel will be increased by 20 sen as of 12.01am tonight, adding the new prices will save the government at least RM1.1 billion.
In order to reduce the burden of the increase on the public, Najib said the Bantuan Rakyat 1Malaysia (BR1M) payouts will be increased this year.
"The social safety net will be widened to ensure that low-income families aren't burdened by the increase in the price of fuel," he said.
However, Najib declined to reveal how much the payments would be this year, saying he would make the announcement in Parliament when he presents the 2014 Budget.
The government has allocated a total of RM24.8 billion this year on fuel subsidies and Najib said they would save RM1.1 billion with the increase of 20 sen in the price of RON 95 and diesel.
"In a full year, the government will save RM3.3 billion while still subsidising 63 sen per litre for RON95 and 80 sen per litre for diesel," he revealed.
Asked about how the public would be affected by the increase, Najib said the country's inflation rate was under control and as such, the rakyat wouldn't be overly burdened.
"This is a process of fiscal consolidation, the markets will feel more confident if we reduce the country's fiscal deficit," he said.
"We have also made pledges and promises and this must be fulfilled. Our stated target is to reduce our fiscal deficit to 3% by 2015," he said.
Najib said the increase in the price of fuel was not a political issue but rather about Malaysia's economic status and survival.
"If the country's economy suffers, the public will feel the pinch the most. Hence, it is better we take action now to tackle the economic issues in Malaysia."
"If we continue to procrastinate, we will end up like other countries in the world who didn't take measures to rein in spending until it was too late and the economy ballooned."
Najib said the public would not be left high and dry, stressing that the social safety net would be widened to ensure those who qualified received BR1M payments.
"We have announced previously that the process of reducing the public's reliance on subsidies would be carried out in stages."
He also cautioned traders and businesses against increasing the price of their goods and services due to the increase in the price of fuel. - September 2, 2013.