- The Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said yesterday that the subsidy rationalisation programme would be divided into three tiers and will take effect from mid-2015.

- The lower income groups will continue to enjoy the subsidised rate while the high income group will pay the market price of RON95 petrol effective June next year.

- The amount of subsidies given to the low and middle income groups will be highly dependent on the market rate of RON95 petrol during that time.

- Accordingly, Malaysians earning below RM5,000 monthly will get full subsidies for the RON95 petrol. Meanwhile, those earning between RM5,000 to RM10,000 monthly will be entitled to a partial fuel subsidy.

- In contrast, the high income group (or those earning more than RM10,000 monthly) will not be given any fuel subsidy from June next year.

- That said, the full mechanism of a targeted subsidy programme is still being studied by the Domestic Trade, Cooperatives and Consumerism Ministry.

- The ministry had requested firms interested in developing the new mechanism to submit their working papers.

- Last Thursday, Deputy Finance Minister Datuk Ahmad Maslan announced that the petrol subsidy rationalisation system would be implemented using the MyKad.

- As a recap, the price of RON95 petrol rose by 20 sen to RM2.30 per litre while diesel went up from RM2.00 to RM2.20 per litre earlier this month.

- Despite the rise in fuel prices recently, the government is expected to spend RM23.2bil for fuel subsidies and cash assistance in 2014 (or -19.7% YoY).

- For 2015, public expenditure on fuel subsidies and cash assistance will likely reduce by another 9.5% YoY to RM21.0bil as the government firms up on a new mechanism for providing petroleum subsidy.

- We note that the allocation for BR1M will cost the government RM4.9bil (or 23.3% of total fuel subsidies and cash assistance) in 2015. The government had allocated RM4.6bil for BR1M in 2014.

Source: AmeSecurities