Thursday, September 5, 2013

Subsidy rationalisation seems anything but rational

by Joanna Yap. Posted on September 5, 2013, Thursday
Joanna Yap

GROANS could be heard all over the country early Tuesday morning as news of the 20 sen increase in RON95 petrol and diesel prices hit newstands.

It didn’t take long for the backlash of sarcasm and cynicism to surface online. The colourful MP for Kinabatangan found himself at the receiving end of a large part of it when he tweeted via ‏@MyKinabatangan the petrol price increase is not detrimental to the public because those who owned large cars were those who could afford the increase whereas village folk would not feel the pinch because they did not own cars. (Minyak petrol naik,pastinya x memudaratkan rakyat ,kerana yg ada kereta besar ada lah orang2 besar dan berkemampuan,org kg ada x berkereta.)

Commentator Min Min ‏@aymeemin, in a thinly veiled jibe, reminded the MP owning a car nowadays was a necessity and not to be taken as a sign that a person could afford it whereas keeping two wives is a sign of a person’s financial ability to provide (Berkereta tu bukan kemampuan, itu keperluan zaman skrg. Berbini dua tu baru la kemampuan.)

The Kinabatangan MP also seems to have overlooked the fact that RON95 and diesel are used mostly by middle and lower income people and this latest increase will hit their pocket.
But that aside, many other Barisan National leaders have jumped up to defend the price increase.

It was reported that the government spends just under RM25 billion annually in petrol subsidy per year. This represents a substantial amount of spending and also a huge sacrifice of socio-economic opportunity. Imagine the multiplier effect it could have on our economy if such a sum, or even one tenth, was put towards better education, healthcare or even public transport.

Various experts have pointed out that subsidies are rarely good for long-term and sustainable national economic growth. Our government seems to be agreeing with this, citing the petrol and diesel price in increase as a measure to help tame the national fiscal deficit.

Last month, it was reported that Malaysian household debt to GDP ratio stands at 83 per cent while corporate debt is 95.8 per cent of the GDP. National debt is currently at 53 per cent of GDP which is only just under the government’s self-imposed debt ceiling of 55 per cent. Thus, the case for reducing petrol subsidies seems well justified.

However, instead of channelling the monies saved to investing in economic multipliers, the government chooses instead to divert it to other subsidies such as BR1M. Many people expect the rest of the savings to be distributed between more subsidies to be announced during the 2014 Budget, the tabling of which is just weeks away.

If true, the recent fuel price increase becomes little more than a subtle exercise in moving money from the left pocket into the right pocket. Some argue it will work because the money is being distributed towards those who need it.

But as several observers have pointed out, it’s more than just a 20-sen increase in petrol prices.

One does not have to hold a university degree to predict the implications of the price increase on people living in rural areas who still have to rely on generator sets for electricity nor of how prices of basic necessities will increase in tandem with rising transport costs — whether in rural or urban areas.

Even if BR1M were to be tripled, it would have limited effect on the standard of living of lower-income earners because of the higher cost of living they will have to shoulder in the longer run.

One can try to blame rising prices on profiteering merchants but the truth of the matter is that by and large, prices will go up because businessmen and traders are feeling the pinch from earlier price increases and, thus, will want to build a bigger buffer to soften any future impact.
Unfortunately, this effectively narrows even more options for those already at the bottom of the socio-economic ladder. It’s fair to say no amount of warnings from the government not to raise prices of goods and services is going to halt the inevitable upward trend.

The second key issue which many people take offence with is whether enough is being done to curb the haemorrhaging in public spending. Wastage and leakage effectively robs any cost savings – no matter how big – of having any significant positive effect. Re-doing just one bad public project represents massive wastage of time and resources that could have been put to better use elsewhere.

Every year, the Auditor General’s report highlights cases of public funds being put to poor use with their disrespect towards fiscal accountability and transparency. Public monies are not infinite and often contributed by taxpayers at great sacrifice, yet some government agencies treat the public purse strings like a bottomless piggy bank.

The public are increasingly questioning who really profits from the billions of ringgit the government spends every year because ordinary Malaysians are reaping less benefit than what taxpayers are paying for.

Every month seems to bring with it at least one announcement of the government launching this programme or that measure to ease the financial burdens of the lower and middle classes, to create more jobs or to boost the economy. Sad to say, many of those programmes have yet to produce results that inspire strong levels of confidence over their efficacy if they even make it past the press conference and proposal committee stages at all.

Nearly four years after Performance Management & Delivery Unit (Pemandu) was officially launched, it is still facing an uphill battle in convincing the public that GTP and ETP are working as they were envisioned to.

Full-page newspaper write-ups and national TV broadcasts by Pemandu on how much good the Government Transformation Plan and Economic Transformation Plan are doing for the nation carries little meaning to people in rural Sarawak who still have no access to affordable clean water, electricity, schools and clinics, and also to urban dwellers who are finding themselves priced out of affordable housing and transport on top of worrying they will become the next crime statistic.

All this talk about a high-income economy by 2020 will continue to sound hollow as long as no real investment and progress is made in dealing with the main causes of the increasingly unaffordable cost of living which is rooted in flawed socio-economic policies.


Read more: http://www.theborneopost.com/2013/09/05/subsidy-rationalisation-seems-anything-but-rational/#ixzz2dzOlkemp

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