Subsidies = inefficiency?

  • Lifestyle
  • Sunday, 11 Dec 2011

What do water and oil have in common? How we use both shows how much further we have to go as a country.

IT’S the rainy season again, and with every downpour, the first thing that goes through my mind is this: in a country where rain can bring traffic to a standstill, why do we even have to contemplate water shortages?

Although most people don’t perceive that as a crisis at the moment, it is a problem recognised by many in the industry (Malaysia faces looming water crisis, Ecowatch, March 22). In fact, the recent court case between Syabas, the Selangor water company, and the Selangor State Government is only the tip of the iceberg of the water situation in Malaysia.

You only have to go as far as the mamak shop to see that a glass of ice water that used to be free now costs about 20 or 30 sen.

Yet, we average about 25cm of rainfall a month. Put a man-sized tub on your condo balcony or the roof of your house and you may collect enough water for one adult to live on for that month. So why don’t we have more home rain-harvesting systems?

The answer is simple economics.

The cost of constructing a rainwater harvesting solution for a double-storey terrace house is about RM4,000 currently. Although this is a high figure, it is not unaffordable, so it should be a reasonable project for house owners.

However, compared to your water bill, it is a large sum. I, for one, don’t get charged more than RM10 a month for water, which means that even if I could source all my needs from the heavens, I would have to use the system for more than 30 years before it becomes cheaper to use the collected water than tap water.

This is a similar problem Malaysians face when it comes to petrol. One obvious way to save petrol (and thus reduce its cost) is to car-pool to work. Doing so would save motorists a few hundred ringgit a month on petrol.

However, a quick check on the Internet shows that although some Malaysians are trying to use websites like, most feel that the disadvantage of not being able to move around freely is not worth the money saved from spending less on petrol.

In both cases, the problem is that the commodity at stake (water and petrol) are undervalued, so there is no incentive for end-users to be careful about how they utilise them. There is no compelling reason to save rain water or car-pool simply because the benefit to the consumer is low.

One of the things I was hoping from the latest Budget was how the government plans to address this inefficiency. I would like to see the country move from a point where the government helps with subsidies for everybody, to one where it encourages frugality by those who can afford luxuries. At the same time, we can channel the benefits to those who cannot even afford three meals a day.

I’m a socialist like that.

I understand that the “sin tax” is a continuing effort towards that goal – the government effectively taxes those who can afford cigarettes and alcohol, in order to help others.

The problem is that most hardcore smokers are those in the lower- and middle-income categories, so this tax actually is a burden to them, while not really being a disincentive to smoke or consume alcohol.

But there’s positive news too: hybrid cars will still get the tax-free incentive introduced last year. This means a Toyota Prius, which should cost about RM200,000 with taxes, is now available for RM139,900.

True, it is still more expensive than most mid-sized cars, but the idea is that it’s meant to save on petrol, and thus, you save on operating costs.

However, if you had to pay the full price for the Prius, it would take you about 80 years to save the same amount in petrol in Malaysia to make it worth buying instead of, say, a Toyota Corolla Altis of the same engine capacity (RM122,990).

It’s still not that much of a deal if you merely considered the savings in petrol.

On a full tank, a Prius gives you roughly double the distance of what you would expect from a car of a similar engine capacity. With petrol in Malaysia costing around RM1.95 a litre, you effectively save about RM80 a month, or about RM1,000 a year.

That means, to justify the extra RM17,000 you pay for the car (instead of the Altis), you have to use it for 20 years before the vehicle “pays for itself”.

If you were driving in the United States, where the cost of petrol is about US$3.40 per gallon (RM10.54 for about 3.8 litres), you would be saving roughly the equivalent of RM2,000 per year – so you need to only drive the car for 10 years before it pays for itself.

In both cases, even “gifts” from the government cannot offset the damage the subsidies do in terms of promoting inefficiency.

I know that the powers-that-be understand that in order to become a high-income nation, we need to improve productivity. Being efficient in using our resources is one big part of it.

But all I see around me are examples of how Malaysians can be wasteful in day-to-day living. Just look around you at an all-you-can-eat buffet and see how much food is left behind on people’s plates after dinner.

I guess when it rains, it pours.

Logic is the antithesis of emotion but mathematician-turned-scriptwriter Dzof Azmi’s theory is that people need both to make of life’s vagaries and contradictions.

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