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Thursday July 22, 2010

Subsidy cuts without pay rise = tax hike

IT’S been roughly a week since subsidies were cut marginally in Malaysia and judging by the reaction people have to it, I guess the public has taken it in stride.

After all, the increase in the cost of fuel, which is ultimately the biggest cost element among the other goods that saw prices rise, was small and well within what people can stomach.

The price increases in sugar and cooking gas were small when looking at what an average household would spend monthly to consume and use such goods.

The way subsidies were removed this time around was also properly handled. The message of why that needed to be done was clear.

Conversely, editorials and comments have stressed the point that the increase in government revenue of RM750mil from the subsidy rationalisation, along with how the Government spends taxpayer money, should also be more disciplined to avoid wastage and should be on projects, goods and services that have tangible benefits to the general population.

So far so good but the reality of things is that the subsidy cuts announced represent the first wave of what could be a series of cuts that would bring down the overall subsidy bill of the Government.

It’s quite likely too that future subsidy cuts could see the price of fuel, depending on the price of fuel internationally, and electricity rise. Along with that, sugar, flour, cooking gas, cooking fuel and maybe even other goods, services and utilities could also see a price increase.

And while the general population, especially the middle-class, has been quiet about the first cuts, there could be grumbles if the price increases do not correspond with the pay packet they bring home.

The reason for that is there is a feeling that urban inflation has grown quite a bit in recent years and that wages in Malaysia have not increased in keeping with the rise in the prices of consumables or even assets.

The increase in starting salaries for jobs in many industries today pales in comparison with how, say the price of a house, car or processed food has risen over the past years or even decades.

I know employers will say that salaries would have to reflect the productivity of employees, the growth of which has in recent years been poorer compared with how Malaysians in yesteryears used to attain.

There are also suggestions that the current labour laws, which make it difficult for employers to fire unproductive employees, are also an impediment to employers offering more lucrative salaries for their workers.

Changes to such laws are reportedly being looked at but there is still no guarantee wages would rise after that.

Unless salaries rise as a result of a more efficient marketplace brought about by the removal of subsidies and laws, the price hikes from future subsidy cuts would be viewed as a tax hike. And that could well raise the blood pressure of a lot of people.

·Deputy news editor Jagdev Singh Sidhu is now looking at a substantially smaller pay packet for the next few months, not from the subsidy cuts but the taxman.

Related Stories:
Penjanabebas: IPPs don’t get financial benefit from gas subsidy
Minimal impact seen from subsidy cuts
Analysts expect subsidy cut in August

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