Subsidies can be double-edged swords


AS highlighted by economist Dr Jomo Sundaram recently, we must be ready to brace for tough times ahead as our economy is facing real problems amid an intractable external situation which is deteriorating on an almost daily basis.

Until now the trade tensions between the world’s two largest economies (the United States and China) are not showing any sign of abating, nor is there any indication that a breakthrough may be achieved anytime soon.

Unfortunately, instead of coming up with a viable plan to tackle the potential economic downturn which may cause a recession, our government has taken great effort to devise an inefficacious offer to take over four toll highways from the concessionaires at a cost of RM6.2bil. The offer that will be financed by a bond issuance will be finalised by the end of this year.

While facing so many economic uncertainties at this moment, is it wise for the present administration to prioritise this election pledge instead of implementing other reforms which are more urgent in nature?

Bear in mind, the reduction of toll rates from these four highways only benefit Klang Valley urbanites. If the government were to fulfil its election pledge by completely abolishing tolls, what would be the impact on our huge national debt?

A subsidy is a double-edged sword. It could help but also harm a large section of the community inadvertently. Reducing toll rates would encourage more people to own cars instead of relying on car-pooling or public transport. On one hand they may be able to save a bit on toll charges but on the other, they would be burdened by a heavy car loan repayment.

The subsidy mentality has long been entrenched in our society. While still eligible to apply for government handouts, many of these so-called poor folks seem to be able to afford to own cars and enjoy air conditioning in their homes.

In all likelihood, many of these heedless people may end up as miserable senior citizens in the not too distant future. Upon reaching the age of 60, they may head to the nearest welfare department for assistance. I doubt they save for rainy days at all.

The government shouldn’t overlook the annual shortfall of RM20bil after replacing the goods and services tax (GST) with the sales and service tax. Unfailingly, we have been facing a budget deficit for the past many years. I urge the government to take a prudent and humble step to reintroduce GST, perhaps at a lower rate of 5% instead of 6%. We need this efficient tax system to administer the country well.

We have relied too heavily on Petronas to cover our fiscal deficit for too long. The recent high dividend request has prompted credit rating agency Moody’s to downgrade its credit rating on Petronas from A1 to A2. The government shouldn’t take this downgrade lightly, as it will push up Petronas’ financing cost gradually, thus affecting its profitability. Moreover, crude oil is not only a depleting natural resource but also an unstable commodity to rely on as a source of income.

The Pakatan Harapan government should abandon these imprudent policies that will hamper the country’s progress towards becoming a developed nation without delay. If Malaysians are pampered with subsidies continuously, I doubt we can achieve developed nation status by 2040. However, if we emulate the Japanese in being diligent and productive, we should have accomplished our ambition a decade ago.

PATRICK TEH

Ipoh

letters , opinion , economy , subsidies , Petronas