This article first appeared in The Edge Malaysia Weekly on June 17, 2024 - June 23, 2024

Prime Minister Datuk Seri Anwar Ibrahim will be remembered for removing the diesel subsidy. It is a difficult decision that he has made and he cannot afford to stop at that.

The diesel subsidy rationalisation scheme would have to extend to Sabah and Sarawak, and later the government will need to address the rationalisation of the petrol subsidy. It will be much more difficult to accomplish and a political hot-potato too.

In the next few years, there are many more difficult decisions that Anwar has to make. The decisions will not go down well with many groups of people. Any prime minister who is serious about reforms will inevitably face pushback from voters. He cannot please everyone.

For this reason, some countries have adopted the practice of restricting the tenure of president or prime minister to two terms.

The two-term rule helps leaders of the state to make hard decisions. During the second term, the leader does not need to be popular and can make difficult decisions. That has normally been the case, especially in the US.

In Malaysia, the bill to limit the term of the prime minister to a maximum of 10 years was tabled for first reading in December 2019. It was introduced during the tenure of Tun Dr Mahathir Mohamad, who himself served for 22 years in his first stint as prime minister before calling it quits.

In hindsight, Mahathir probably wanted to make it a law because he did not want anyone else serving for too long in the post and becoming the centre of power as he was.

The bill to limit the term of the prime minister saw no progress during the tenures of Tan Sri Muhyiddin Yassin and Datuk Seri Ismail Sabri, the eighth and ninth prime ministers.

Based on reports, under Anwar’s rule, the reform to limit the prime minister’s term is still on track. Last year, Minister in the Prime Minister’s Department Datuk Seri Azalina Othman had said that a fine-tuned policy paper on the 10-year limit on the prime minister’s tenure would be tabled in cabinet for a decision.

When the bill would become law is anybody’s guess.

Nobody can say for sure if Anwar would be able to stay on for another term. The next general election is still a long way to go.

A law that limits the term of the prime minister would certainly help to send signals that Anwar does not plan to be in power for more than 10 years, and that he should be given a chance to undertake more reforms.

Since 2004, all the prime ministers before Anwar had spoken about removing the blanket subsidies and introducing targeted financial assistance. Between the two measures, removing blanket subsidies is more difficult because it would invite criticism and severe political repercussions.

Under Datuk Seri Najib Razak, direct financial assistance was introduced, earning him the label “cash is king”. However, he did not have the political will to remove blanket subsidies.

Among past prime ministers, only Tun Abdullah Ahmad Badawi attempted to rationalise petrol and diesel prices. He floated the price of petrol and also raised the salaries of civil servants. The private sector also raised salaries.

It was all done with the intention to help the people on the street to cope with the rising cost of living because of the rise in fuel prices. The savings from subsidies was to be channelled for development.

However, Abdullah did not undertake other reforms that the general population was hoping for. His administration is known to have mended fences with the judiciary. However, there were inadequate reforms to ensure the independence of the judiciary.

Abdullah also failed to reform the police and civil service. He could not stop corruption within the system and his family members were seen to have a big influence on his decisions. He created a “fourth floor” in Putrajaya where all policy matters such as the National Automotive Policy were decided before the industry players were briefed.

The “fourth floor” was something new to politicians and industry players as Abdullah’s predecessor, Mahathir, was known for an administration that was almost a “one-man show”.

Based on past experiences, the pushback against reforms will be strong.

For instance, the police force were against Abdullah setting up the Independent Police Complaints and Misconduct Commission. To make matters worse, the warlords in Umno were still very much aligned to Mahathir.

After leading Barisan Nasional (BN) in the 2004 general election to a thumping victory, clinching 92% of parliamentary seats, he lost the two-thirds majority in 2008. BN was still the dominant party in the ruling government but it could only form the government with the support of parties in Sarawak.

As a result, Abdullah was forced to vacate his position in the government and Umno. Since Abdullah, no prime minister has dared to tackle the rising cost of the country’s subsidies despite it rising every year, that is, until Anwar.

Anwar has taken the plunge to cut subsidies because it is a crucial part of his plan to reform the federal government’s finances. The federal government’s operating expenditure will only keep rising and it will continue to eat into the development expenditure.

By removing the blanket subsidy for diesel, the government expects to save an estimated RM4 billion a year. The logic is to reallocate the financial resources to other areas to meet its obligations.

The ultimate objective is to reduce the fiscal deficit to between 3% and 3.5% by the end of next year without compromising on the federal government’s development expenditure.

Malaysia’s subsidy bill hit a high of about RM80 billion in 2022. And 70% of the subsidy is related to keeping the price of petrol, diesel, gas for cooking and all other types of fuel artificially low.

According to the government, the diesel subsidy bill is about RM14 billion a year. It is estimated that about half of the amount is lost through “leakage”, partly due to smuggling and the fuel being purchased illegally by industries that are not entitled to subsidised diesel.

After diesel, the government has to tackle the subsidies on petrol, which is a far bigger problem. For instance, RON95 is RM2.15 in Malaysia as opposed to RM9.63 in Singapore, RM6.13 in Thailand, RM4.12 in Indonesia and RM5.89 in the Philippines.

The petrol price in Malaysia is the ninth cheapest in the world.

Curbing the practice of blanket subsidies will be an unpopular decision because it hits every household in the country. The pushback will be strong. It will not be a popular move and may even cost Anwar the prime ministership.

That is a reason why he should send a clear signal that he intends to stay only for two terms to undertake all the reforms that none of the previous prime ministers dared to embark on. It would be a meaningful message to all his critics.

M Shanmugam is a contributing editor at The Edge 

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