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Sunday September 15, 2013 MYT 12:00:00 AM
Saturday September 14, 2013 MYT 10:37:34 PM
by andrew sia
The hidden ‘subsidies’ for wasteful public spending should first be cut, before reducing the petrol subsidy.
WHILE the modest 20 sen “rationalisation” of petrol and diesel subsidies is said to be “good for the country”, logically, a bold RM1 cut should be even better for our future, yes?
Let’s go back to 2006 when the price of petrol was raised by 30 sen per litre from RM1.62 to RM1.92. We were told then that RM4.4bil of “wasteful subsidies” had been saved to improve our public transport system, especially in the Klang Valley.
It would probably help cement support for the current 20 sen hike if the public knew just how, in detail, the RM4.4bil saved back in 2006 have been used to make buses and trains more comfortable, convenient and reliable.
Are subsidies good or bad? If something, say cancer, is “bad”, we should be happy to announce that we will “cut” it; after all, we won’t say that we will “rationalise” a malignant brain tumour. So, one may ask why there’s a certain ambivalence over the current 20 sen “adjustment”.
There are different kinds of subsidies, for instance, those that protect general social welfare such as (almost) free primary school education, government hospitals and cheap rice. Then there are subsidies, like the RM8bil a year for Independent Power Producers (IPPs), which promote corporate welfare (read: profits).
Now, how do we determine WHICH subsidies are good or bad? What about petrol? To answer that, let’s examine the case of a glass of Milo ais. Remember the jolt of June 2008, when petrol prices were raised by 78 sen from RM1.92 to RM2.70?
Shortly after that, a mamak shop in Kuala Terengganu made the news when it was fined RM22,500 by Domestic Trade Ministry officials for raising the price of Milo ais from RM1.30 to RM1.80.
Yet weeks later, I found myself regularly paying RM1.80 for the same blessed drink at mamak restaurants in Petaling Jaya. Night after night, I hoped to see another dramatic raid for overcharging, but the only “action” I saw was of the English Premier League on the big screen TV’s.
The best part was this: months later when the price of petrol had fallen back to RM1.90, that Milo ais was STILL being sold for RM1.80!
The government’s objective with the current 20 sen price hike is, in principle, laudable. After all, apart from waving flags and singing Negaraku in cinemas, surely all citizens should also exercise our patriotism by helping to “reduce the budget deficit”.
But will our businessmen be equally patriotic Good Samaritans who will “menyahut seruan kerajaan” (obey the government’s call) not to “raise prices unreasonably”?
Coming back to that exemplary glass of Milo ais, some people would say that I should boycott shops selling at such high prices. But if I did that, that would mean RM1.80 less for the boss of the mamak restaurant to pay workers’ salaries, shop rentals and food suppliers.
In other words, there would be RM1.80 less circulating in the economy. Economists would analyse this as inflation leading to a “dampening” of consumer spending, one of the key “drivers” of the local economy.
With the 20 sen “rationalisation” of petrol subsidies, the government says it will “save” RM3.3bil. But in business-speak, it also means that we consumers have lost RM3.3bil in “disposable income” to “stimulate” the domestic market.
This means that we, 26 million Malaysians, have “lost” RM3.3bil (used to pay for more expensive fuel), money that could instead have been used to buy about 1.8 billion glasses of Milo ais, 917,000 Modenas motorbikes or 73,000 Perodua Myvis, all proudly Made in Malaysia products that provide thousands of jobs.
But the flipside is that all that money can also be used by our government to invest wisely for long-term development. So the bottom line is this: will the RM3.3bil benefit the economy more if it were in the hands of 26 million consumers? Or the government?
In fact, the former group chief editor of The Star, Wong Sulong, commented on the reduction of petrol subsidies, on May 26, 2006 thus: “People are not stupid. They are prepared to sacrifice and tighten their belts if such measures are necessary – for their own good and that of the nation. But they also expect the Government to deliver... A ringgit spent by the Government must result in at least one ringgit in value to the collective wealth of the nation, not 80 sen or 60 sen.”
Here, it would be useful to study the last Auditor-General’s report on how to ensure that every sen saved from subsidies can be used efficiently.
And hopefully cases of wastage in that report, such as the Marine Parks Department spending RM16,100 for a LCD TV and DVD player (when the market price was RM2,182) – not exactly helpful when it comes to trimming our budget deficit – will be gone for good. Yes, admittedly, petrol subsidies are not an ideal way to develop our economy. But given our current situation, I believe they should be withdrawn as a last resort only after the hidden “subsidies” for mismanagement and even corruption have been removed – things which our government have pledged to continue fighting.
If wasteful spending is removed, then we can begin to consider the full scrapping of fuel subsidies. If say, one day, the price of petrol and diesel were raised by RM1, that would mean a savings of RM16.5bil.
If RM16.5bil can be used to stop crime, to improve our public schools (till they are comparable with private ones) and give us efficient public transport (and cycling lanes too, please), the grumbling and moaning we hear now over the 20 sen price hike may even be transformed into grudging praise.
Our economy would also become more eco-friendly, as people would switch to more fuel-efficient cars, motorbikes and public transport. Or even bicycles, which burn not a drop of petrol but only body fat!
If all that can be achieved, even I will happily pay RM2.90 per litre of petrol.
Andrew Sia prefers full-bodied teh tarik over weak-tasting English tea any day.
Tags / Keywords:
Opinion, Petrol Subsidy, Inflation, Economy, Purchasing power
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