The RM3.3 billion savings from the reduction of fuel subsidies will be ploughed back into the rakyat's interest, such as the 1Malaysia People's Aid and infrastructure projects, said Minister in the Prime Minister's Department, Datuk Seri Abdul Wahid Omar.

He said the move is a holistic approach to manage fiscal deficit and distribute subsidies to targeted groups.

"Instead of subsidising those who don't need it and foreigners, we provide directly to those who deserve the subsidies," he told reporters here today.

Abdul Wahid said the move is a process to strengthen the economy and aimed at giving a positive impact to the well-being of the rakyat in this changing global economic environment.

Prime Minister Datuk Seri Najib Tun Razak yesterday announced the increase in the price of RON95 petrol and diesel of 20 sen per litre, effective today.

The government spent RM24 billion subsidising fuel every year, Abdul Wahid said.

On the projected inflation after the fuel price increases, Abdul Wahid said it would likely to increase within 0.3 per cent for 2013.

"Based on our analysis, we believe that today would be a good time to start addressing this issue in a sense that inflation is at around two per cent level, which are relatively low comparing to other countries in this region," he said.

On the goods and services tax (GST), Wahid said should it be implemented, the government would ensure that its impact to the people would be manageable.

"The GST would be to replace the sales and service tax that we have currently, not on top of it. Typically, whenever countries implement GST, there will always be both exempted and zero-rated items for essential goods," he added.

Abdul Wahid said that the government's target was to reduce the fiscal deficit, manage the overall debt and address the narrowing current-account surplus.