Tuesday, October 28, 2014

Govt blunders with tiered oil subsidy

TIGERTALK  |  OCTOBER 28, 2014 2:35 PM

tiger-talk-logo-redyes-v2Tiger read with great interest and increasing alarm that we are going to have a tiered subsidy system for fuel. Now, whoever came up with this feeble idea and who will gain from it? Who will enforce it? Tiger groans at the scheme’s plain stupidity and wonders what’s the motive.
Tell me if I am wrong. Aren’t fuel subsidies supposed to be a toll on government finances and encourages on top of that wasteful use of wasting resources instead of discouraging their unnecessary use? Isn’t that why the government is cutting subsidies bit by bit?
According to Second Finance Minister Ahmad Husni Hanadzlah, the fuel subsidy rationalisation programme will be divided into three tiers, depending on monthly income.
Ahmad Husni Hanadzlah
Ahmad Husni Hanadzlah
Those earning below RM5,000 will receive a full subsidy, while Malaysians earning between RM5,000 and RM10,000 will have some form of subsidy, though there are no further details on the quantum. Those earning RM10,000 and above would not be eligible for any fuel subsidy.
“The programme is being worked on by the Domestic Trade, Cooperatives and Consumerism Ministry,” said the minister. According to a Bernama report, the government will monitor the claimant and entitlement for each car based on the registered owner of the vehicle.
The implementation would be based on the registered owner’s salary and a special body will be set up to verify the entitlement and monitor the implementation of the subsidy rationalisation scheme.
First, let’s look at the tiers. If you earn less than RM5,000 a month, your fuel will be subsidised. According to government figures, the median household income for Malaysia is RM4,258 a month. In other word, half of all Malaysian households earn less than RM4,258 a month.
Mind you, this is household income, not individual income. If more than one individual works in an household, and that is likely to be quite common,  individual income is a lot lower.
Salary can be good proxy for income. A salary survey by the Statistics Department shows that the median salary for 9.3 million Malaysian workers for 2012-13 is just RM1,500 a month. That means 50% of salaried Malaysians earn less than RM1,500 a month.
The figure of RM5,000 per month for individual income, the cut-off for subsidies, is more than three times the median salary which means that well over half and perhaps as much as four fifths or more of Malaysian individual incomes are likely less than RM5,000 a month.
And those who don’t get any subsidies at all (individual income of over RM10,000 a month) are likely to be a very small percentage, most likely in the single digits. But even this group is likely to get subsidies because it is so easy to do so.
All you need to do is to register your vehicle in the name of your wife or son or daughter or some other relative who does not have an income or whose income is rather low.
Petrol pumpThe end result is likely to be that nearly everybody will get subsidised fuel! Why bother then with removing subsidies and then imposing a tiered subsidy which is likely to exempt nearly everyone?
Far better to utilise the subsidy savings to pay the really needy to give them some relief from poverty, which was the original intention in the first place of removing subsidies. Also, it will encourage better use of wasting resources.
This new, hair-brained scheme, if it goes ahead, will result in numerous complications on top of that. Imagine going to fill up your car. The petrol pump attendant presumably will check your car registration, ask for your MyKad with details of your income, but what if the car he is driving is not in his name? Does he get exemption anyway? Or it car specific?
Who will compile the income data? Even Inland Revenue has problems computing that and regularly challenges your declared amounts. And how is that whole thing going to be computerised?
Who is going to get the contract for this? How much is the system going to cost? These are interesting questions because that may well be the motive for coming up with this ridiculous scheme in the first place – money.
Will it result in long queues at petrol stations? Will a black market for petrol emerge? When nobody was hankering for a tiered scheme and the public was already beginning to accept the concept of subsidy withdrawal, why go and throw a spanner in the works.
Tiger continues to be puzzled and amused in turn by government antics such as this and is tired of this tiered subsidy thing.
~ Kinibiz

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