Speaking at a panel during the Khazanah Megatrends Forum in early October, Professor Adeeba Kamarulzaman asked the audience, “How many of you in the room also stay awake at night because you’re worried about the state of our public education system?” Upon seeing the number of hands raised in the room, Adeeba said, “Hm, okay, not as many as I thought.” The moderator then pointed out, “That’s because [the audience] all send [their children] to private schools.”
I suspect that the number of hands would have been even lower if the word “education” was replaced with “transport”. According to the mayor of Kuala Lumpur, the public transport use in Kuala Lumpur was at 24% daily at end-2022, compared with 18% in 2018. This is a good trend, but it nonetheless reflects the fact that private transport in Malaysia’s most well-connected public transit city still stands at 76% daily.
The reason I raise this point about public transport comes on the back of a variety of policy announcements by the government that focus on land transport in the country. First, in Prime Minister Datuk Seri Anwar Ibrahim’s Ekonomi Madani speech back in July, he said that the government will focus on efforts to build a better public transport network between and within cities, as well as improving last-mile connectivity through cost-effective methods, including the use of electric buses. Secondly, in the New Industrial Master Plan 2030 and Budget 2024, the government highlighted its commitment to continue incentivising the adoption of electric vehicles.
At first glance, these policies don’t seem particularly congruent with one another. One attempts to encourage greater use of public transport, while the other focuses on a transition in private transport from internal combustion engine (ICE) vehicles to electric vehicles, but these vehicles are private nonetheless. However, if we take a step back and take into consideration the government’s positive moves towards rationalising subsidies — for chicken, diesel, electricity and so on — they are actually pretty intimately connected. In fact, I would argue that the number one thing the government could do in supporting the adoption and rollout of electric vehicles is to really strengthen the intra- and inter-city public transport system.
It seems contradictory. More people taking public transport on a regular basis means fewer people taking private transport, and therefore electric vehicles. First of all, that’s generally a good thing. Secondly, given the cost of living being what it is, and given that household income growth in Malaysia remains rather anaemic, a big reason why people choose to continue to take private vehicles rather than public transport is because the latter — despite lower “fares” — remains overall more costly.
Last-mile connectivity remains key; if a bus system remains too irregular, or connections are too far away, sucking up time, or Grab is too expensive, people will still choose private transport. And this is especially because of a quirk of public finance in this country. Thanks to the years and years of fuel subsidies, the price of RON95 at your neighbourhood petrol station is lower than the price of RON95 at the pump in Saudi Arabia. That’s ridiculous.
Accordingly, ICE vehicles remain extremely cost-efficient for the median household as long as RON95 subsidies remain intact. The budget has signalled a positive first step in removing the unrealistic and unsustainable blanket subsidy policies, but more cuts will still have to come. Malaysian public finances do not have the luxury of the US’, where no matter how messed up American public finance still is, US Treasury Bills remain the global risk-free asset and thus, the US remains the global safe haven. Further rationalisation of subsidies is a must, but the question is what do we do about the cost of living that will inevitably rise?
Part of the government’s solution is targeted cash transfers for lower-income households. That isn’t a bad solution by any means; the question is how well we can implement the programme. A recent World Bank report points out that social assistance transfers are not as effective as they could be, diluting benefits for those who particularly need them. More can be done to make the cash transfers more meaningful, such as giving the cash to mothers, in particular — there is a lot of global empirical evidence on this.
But, simply cutting fuel subsidies and giving cash transfers to compensate for the rising cost of living addresses a symptom, not the root cause. People depend on fuel subsidies because it remains the most cost-effective way for them to go to work, drop their children off at school, run errands and so on. What we need to do is provide a far more cost-effective alternative, namely, a really comprehensive intra- and inter-city public transport such that the dependence on fuel subsidies is significantly reduced. From there, the government can be even bolder in rationalising fuel subsidies, and even reducing some of those cash transfers, to be further deployed to enhancing the public transport system. And, to be clear, I don’t think the answer to a more comprehensive public transport system is yet another LRT or MRT line, I think the solution is most likely to come from a reliable bus system.
What does this have to do with electric vehicles? Well, in terms of a cost point for most Malaysians, even when the government lifts the embargo on electric vehicles costing above RM100,000 in 2025, as long as fuel subsidies remain in place, the economics of companies investing in charging infrastructure or of households moving away from an ICE vehicle to a private electric vehicle remains questionable. It is the removal of fuel subsidies that will dramatically shift the economics of using an ICE vehicle, especially if oil prices remain elevated — a good bet, given that the US is now a net oil exporter. And, as a further derivative of that point, removing the fuel subsidies can also coincide with removing tax breaks on the purchases of electric vehicles. There’s no need to “reprice” electric vehicles vis-à-vis ICE vehicles as much anymore, when ICE vehicles no longer have the advantage of fuel subsidies.
With all that said, I do think it is reasonable to give the government some time to rationalise subsidies. These subsidies have created distortions in the economy for decades; we can’t expect those distortions to all be resolved with just one single policy, or within a year or two. The budget was a good first step, but to the government’s credit, the Ministry of Finance recognises that more still needs to happen. You can’t keep pumping money into the economy like the world did after the 2007 global financial crisis and not expect there to be serious consequences when that liquidity gets tight.
That said, as mentioned, cash transfers to compensate for subsidy rationalisation address symptoms, not causes. The key challenge we need to tackle remains a cost-effective, reliable and well-connected inter- and intra-city public transport system. If this government can make clear strides towards this goal, it will significantly improve the lives of millions of Malaysians and, one day, be one of the greatest legacies any government could leave behind.