Remove Subsidies That Benefit The Rich

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At some point, the government needs to start lowering the large subsidy bill as oil and commodity prices have skyrocketed. But to do so today with a bang and in one go will introduce tremendous price increases which will burden the rakyat.
Thus, the solution to this problem has to be a delicate one - a gradual structural change instead of a huge one which moves towards direct grants for the poorest in the community while cutting subsidies completely for those who can afford it and who tend to be the major consumers.
This will also ensure that by pricing essential commodities such as oil and gas, cooking oil and other foodstuff and utilities such as electricity and water closer to market rates, wastage can be avoided and conservation encouraged.
By moving in this direction, the government can begin to pay more than lip service to the oft-repeated mantra of sustainable development with due consideration to the environment and instead take meaningful steps towards this goal. It can be done.
In a recent interview, finance minister Tengku Zafrul Abdul Aziz revealed that subsidies for the whole of this year are expected to hit a ginormous RM80 billion compared to the budgeted figure of RM31 billion - a difference of RM49 billion. It exceeds the total development expenditure of RM76 billion for this year!
However, since we are net exporters of energy, it is not so bad after all as RM37 billion of the subsidies are projected for petrol, diesel and LPG this year compared to RM11 billion in 2021 and just RM1.6 billion in 2020.
Tengku Zafrul said the cost of maintaining electricity tariffs for the second half of 2022 is RM5.8 billion compared to only RM0.7 billion in the first half. Cooking oil subsidies are expected to hit RM4 billion this year.
Taking energy first, the subsidies are RM43.5 billion (37 + 0.7 + 5.8) or a massive 54 percent of total subsidies of RM80 billion projected for the year. This is the obvious area to be targeted for any reduction and rationalisation in subsidies.
But the situation is not as bad as it seems, because we are net exporters of energy and all oil and gas resources of the country are owned by national oil corporation Petronas which is 100 percent owned by the government.
It is entirely possible that through higher revenues from Petronas because of rising oil prices and higher taxes from oil and gas exports, the government will probably more than recover the oil subsidies.
The rich can afford to pay
But that does not mean the government must subsidise the prices indefinitely, especially since the clear evidence is that the largest consumers of energy are the more affluent who can afford to pay the full price for it.
It is good that Zafrul realises that the blanket fuel subsidy is not sustainable and that the fuel subsidy benefits the rich more. His figures show the top 20 percent (T20) of households spend RM640 per month on fuel while the bottom 40 percent (B40) spend RM180 a month.
The T20 household gets three and a half times the benefit that the B40 household gets, which further increases the living standard disparity between the two, this time with help from the government.
While Zafrul does not elaborate on the solutions, this has to be the targeted help that the government espouses where direct aid is given to the poorest sections of the community.
A solution would be to target the poorest 20 percent of the community by direct grants when the oil prices go up and let the pump prices go up gradually. But then transport costs will go up, which will have a knock-on effect throughout the economy.
There may be ways to prevent this by giving direct fuel subsidies to providers of both public transport and goods based on the amount of fuel they use to be verified by bills provided.
It is necessary to remember that such selective subsidies can be sustainably done on a long-term basis because Malaysia is a net exporter of energy which means rising prices actually improve the finances of the country, some of which can be passed back to poorer people.
There is, of course, always the danger of smuggling and abuse of the system of subsidies, the answer to which is improved vigilance by a system of efficient, competent and incorruptible monitoring. Which is more easily said than done.
For palm oil, where we have a cooking oil subsidy projected at RM4 billion this year, the same argument applies. We are major exporters of palm oil and the government gets a lot of tax on direct sales of palm oil, windfall taxes and income taxes.
These may be enough to offset increased subsidies, if not it helps to reduce the cost of the subsidies tremendously. Again, the problem lies in striking a delicate balance between the subsidies of different income groups so that it is the poor and those who need help who receive the assistance.
However, one should not expect any major change before the 15th general election. Unpopular measures such as reducing subsidies will likely be undertaken only after that hurdle is crossed.
One hopes that the elections will result in a government which will be receptive, open and prepared for positive change in all directions, including removing subsidies which benefit the rich more than the poor. - Mkini
P GUNASEGARAM, a former editor at online and print news publications, and head of equity research, is an independent writer and analyst.
The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.

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