Tough to implement targeted subsidies, say experts

PETALING JAYA: Cash transfers and other forms of support can be implemented faster and more effectively rather than providing targeted subsidies, say economic experts.

While the government is looking into rolling back blanket subsidies in favour of channelling targeted support to lower-income groups, economists say other factors driving up the cost of living such as price-gouging cartels must also be discussed while a framework to address the issue will need more groundwork study.

Economist Prof Geoffrey Williams of the Malaysia University of Science and Technology (MUST) said targeted subsidies would be difficult to implement and it was better to provide assistance to those in need through cash transfers as a way of subsidising their income and not their expenditure.

“Targeting is very difficult in practice. How do you target toll subsidies on the poor when they don’t use tolled roads or use motorcycles?

“How do you target food subsidies on the poor when anything sold at subsided prices is available to anyone to buy? You can’t sell chicken, eggs and cooking oil only to poor people,” he said.

Prof Williams added that monitoring who bought subsidised products would also be almost impossible and that people in low-income brackets might not use the subsidised products anyway.

Lower-income groups use public transport more so they do not benefit from petrol subsidies, he said.

Ahmad Yazid Othman, a member of the National Cost of Living Council and a fellow of the Malay Economic Action Council, said the targeted subsidy proposal was not new but the question would be how best to implement it.

“This requires us to invest more in solutions. It is untested and we don’t have time to experiment and we won’t know if it will have the intended impact as we are not able to identify collusions and monopolies fast enough to ensure the market becomes neutral and efficient.

“Targeting who qualifies will be challenging. It will be better and easier to tax those who don’t qualify for subsidies,” he said.

On commodities that will be placed under targeted subsidies, Ahmad Yazid said they had identified top 10 food items consumed by Malaysians and inputs that affected cost of production so these would be the priority.

To start with the targeted subsidy programme for petrol, he suggested the introduction of a fuel tax that could be charged to those driving cars with value above RM100,000.

“The rest are almost impossible unless the government wants to impose a special point-of-sale system across all retail and online stores for food items,” he said.

He also said that special night markets like Jualan Keluarga Malaysia could continue to ensure subsidised goods were made available to those who qualified.

“Tax rebates should be given to the private sector which is able to provide affordable prices below cost of living standards to consumers. It will promote innovation.

“Similar incentives should be given for agropreneurs producing food items.

“We may also need to reintroduce Value-Added Tax (VAT) or Goods and Services Tax (GST) and Wealth Tax for the top 5% but collection must all be used for cash transfers for the first two years,” Ahmad Yazid added.

Meanwhile, Universiti Tun Abdul Razak economist Prof Dr Barjoyai Bardai said the government would need to look into cartels and stop their anti-competitive practices and transactions that unnecessarily raised prices.

There was also a need for the Special Jihad Team to Tackle Inflation to be strengthened to help families face the challenge of rising costs, he said.

Prof Barjoyai said there was a need for the government to conduct a study on the people’s needs and aspirations as there could be a mismatch with government policies being drawn up in Putrajaya.

He also said the idea of targeted subsidies had been floated for over a decade but there was no political will to execute its implementation due to a lack of microdata on the beneficiary groups.

Consumers Association of Penang education officer NV Subbarow said subsidies for the lower-income individuals were most welcome but must reach the right folk.

The subsidies list must include most-used ingredients such as rice, cooking oil, millet, eggs and dhal, he said.

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