Budi95 Chosen Over Cash Transfers To Fix Fuel Leakages, Avoid Past Pitfalls

The government’s decision to roll out Budi95 instead of floating RON95 petrol prices with cash handouts wasn’t made lightly. Instead, it was shaped by lessons from the past and a push to plug years of fuel smuggling, said Treasury secretary-general Datuk Johan Mahmood Merican.

Under the new system, Malaysians with a valid driving licence enjoy RON95 at RM1.99 per litre, while non-citizens pay the unsubsidised rate of RM2.60.

Speaking at the Malaysian Economic Association’s post-Budget 2026 dialogue, Johan said the idea of floating fuel prices and giving out cash may look neat on paper, but Malaysia’s previous attempt didn’t go as planned.

“Perhaps the challenge then, and maybe this was where maybe we didn’t manage the psychology very well,” he said.

He was referring to the time when the government under Tun Abdullah Ahmad Badawi raised fuel prices and gave cash aid, a move that quickly turned unpopular as people spent the cash and later blamed the government for inflation.

Johan explained that while price-floating and targeted cash transfers are often seen as the ideal solution, Malaysia’s long-standing fuel subsidy system makes an abrupt change difficult.

“But one doesn’t start from an empty slate or a blank page. And like it or not, the government of Malaysia has been subsidising RON95 for a very long time,” he stressed.

Johan added that floating prices could also create unfair outcomes as those living close to work would end up better off, while long-distance commuters would feel the pinch despite receiving the same cash aid.

The Budi95 scheme, he said, offers a more practical fix while addressing smuggling issues.

“That’s what we see in diesel, there was significant smuggling... After implementing diesel targeting, we suddenly saw a drop in sales in petrol stations, and a corresponding rise in commercial sales from oil companies directly to corporates,” Johan noted.

Johan also credited World Bank lead economist Apurva Sanghi for observing that Budi95 carries a “feel-good” factor for Malaysians for seeing the savings right at the pump instead of through a bank account.

“Unlike when money just goes to the bank account... here you are right. Part of the intention is to get to see, ‘look, this is the price... you are paying a smaller amount based on the receipt,’” he said.

Apurva, however, noted that while Malaysia’s subsidy reforms are a big step forward, Budi95 might not fully stop smuggling.

“That is basically what works in most parts of the world... but of course, for that you need a proper, efficient, functioning system for offsetting cash transfers and maybe it’s not that strong in Malaysia yet,” he concluded.