Removing subsidies not the way

I BELIEVE that subsidy, like monopoly, is a market intervention we must do without. In a perfect market set-up, a subsidy will only encourage economic inefficiency and stifle growth.

Under normal circumstances, when resources are scarce, a price mechanism must be allowed to take its own course. But economics is not a perfect science, and most developing countries are operating under imperfect economic regimes.

Most countries are faced with a burgeoning population with substantial number of poor people. Wealth distribution and proper welfare are two critical elements bedevilling these nations.

But a subsidy is still an essential safety net to ensure a better livelihood for billions on the planet. Take the case of Malaysia. We are still reeling from the aftermath of the Covid-19 pandemic. For two years, we were battling the scourge with various degrees of success. The economy suffered, businesses were severely affected, some industries were decimated and people lost their jobs. We have never encountered such a crisis in the history of our nation.

Many are impoverished. The process towards normalcy is slow and painful. This is the time we need government interventions for the better. We need a prudent economic recovery plan and a better policy to alleviate the sufferings of the people. Human survival at this point should not be left at the behest of economic theories, principles and predictions. It is all about people trying to survive and to move on with their lives.

This is not the time to even think about removing subsidies, especially when the poor are involved. More so to do away with subsidies on essential goods, especially chicken, eggs and cooking oil. It is mind-boggling that such an idea was even mooted in the first place.

To say that the backlash is immediate and vicious is an understatement.

It was a decision made perhaps with the best of intentions. It is a good move to manage taxpayers’ money prudently. Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz has informed us that the total amount of subsidies is expected to reach RM80bil this year, the highest in the nation’s history.

According to him, in order to reduce inflationary pressures on the populace, the government has provided various consumption subsidies on petrol, diesel, liquefied petroleum gas (LPG), cooking oil, flour and electricity.

The RM80bil includes other social welfare assistance and financial help provided to farmers and fishermen, he said.

Many would argue that the money spent on subsidies is better off utilised to provide development projects for rural areas or better infrastructural incentives in our cities. After all, we can’t sustain the subsidy and financial aid to the needy, forever. We can argue about the benefits of direct cash aid to people in the form of the Bantuan Rakyat 1Malaysia (BR1M) during Datuk Seri Najib Razak’s administration and now the Bantuan Keluarga Malaysia (BKM).

The truth is an additional RM50 or RM100 in BKM, as announced by the Prime Minister for those eligible, would have little effect, considering the spike in the prices of chicken, eggs and cooking oil.

The saddest thing is that the moment the government announced the retention of the subsidy for the 1kg cooking oil in polybags, those bags simply disappeared from store shelves. The poor will have to buy unsubsidised cooking oil.

Subsidies work better in an environment where corruption and leakages are under control, but we have a long way to go to ensure this. We have heard horror stories of how subsidies are being siphoned off by cronies and those close to the people in power.

It’s worse when government interventions are motivated by political interests. At the same time, we have to deal with a national debt amounting to almost one trillion ringgit, and we also have to factor in the cost to pay for various financial scandals.

We need long-term solutions to our problems. We need holistic, whole-of-government and government-private sector initiatives. A proper consultative group that encompasses the best brains from both the government and private sectors must be set up. The purpose is not just to tackle inflation and assist in managing cost of living but also to advise the government on how to resuscitate the economy post-pandemic.

The way I see it, the “jihad” for now is to prioritise the policies. It has to take into consideration the positive externalities to benefit the people.

We concur that subsidy in the long run will hurt the economy and prolong reliance on the government’s help. Targeted subsidy is one way to go. But for now, when people are struggling to survive the high cost of living, declining purchasing power, wobbling economy, rising inflation and political uncertainties, the last thing any government should do is to remove subsidies on essential items.

Johan Jaaffar was a journalist, editor and for some years chairman of a media company, and is passionate about all things literature and the arts. And a diehard rugby fan. The views expressed here are entirely his own.

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