Alternative Form of Dispensing Subsidies Government subsidies are a distortion of economics. They are unhealthy. They lead to misallocation of resources and stymie creativity and innovations to overcome costly items. In a market economy like ours, price is a very important mechanism to help society allocate its limited resources in order to satisfy its unlimited wants. We screw up our price mechanism, we screw up our economy. It’s that simple. Subsidies are wasteful to our national budget and consumption patterns. But as a compassionate nation, subsidies may be necessary to lend a helping hand to some of our less fortunate citizens. So subsidies are less of an issue of objectives rather than implementations. Our current modus operandi in dispensing subsidies is wasteful. The government must urgently consider better alternatives. As we all know, our present form of dispensing subsidies is a free-for-all madness. It’s easy to implement. It does not require much planning. It’s brainless. That’s why it is so darn inefficient. The mechanism I am proposing is a whole lot more complicated. Not only does it require detailed planning, it calls for seamless coordination among the government services, and masterful communications campaign. Once implemented, the system will be easy for the government of the day to direct the subsidies to the segments of society that need most help. Though it’s complicated from today’s standpoint, it’s doable. It’s not new. Developed nations have done it. Since we are to be a developed nation soon, we may as well get going to be like one. In a nutshell, the mechanism to dispense subsidies is through income tax submission. But a mere mention of income tax raises the red flags. That’s why the government service mentality must change, and the people’s mentality must also change. And that’s why an honest-to-goodness communications campaign must be a crucial part of its implementation. Make no mistake. Subsidies are not free. They are a form of taxation. Someone has to pay for it and it’s the taxpayer – we the people. If the subsidies were done away with, ceteris paribus, the taxpayers should get the tax breaks from the savings. So we get ‘subsidized’ through the tax break. Of course this is only an academic rationale. In the real world where government spending is full of leakages (like corruption) the tax break theory may not materialize. Setting aside our skepticism, how do we dispense subsidies through income tax? Add up all the subsidies the government is dispensing and pay them in the form of tax rebate to individuals and businesses. This means everyone, rich or poor, with income or without, must submit income tax, just like in the developed countries. To arrive at an equitable subsidy payable to an individual or family or business based on consumption pattern is not all that difficult an exercise. It is not complicated at all. What about political backlash? It varies from zero backlash to a Tsunami of public outcries. It really depends on how the government implements the decoupling of subsidies. Based on the usual practices by the government, a Tsunami is more likely. That’s why there must be a change in mindset. The Rakyat will be more willing to go along if they are convinced that government spending is efficient with little or no leakages. No leakage is a tall order given the current public perception of the government, at least among the well-informed netizens. While I may have a pretty good idea on how to go about implementing this paradigm shift, the nation has no shortage of capable and honest professionals who can undertake such exercise. The government just needs to tap their talents. What I have described is merely a thought, not even a concept. If the government is serious about exploring this thought, I believe, many of us will be willing to help fill in the blanks, pro bono. Remember, the dividend of a successful implementation means no more leakages of subsidies – no more smuggling (save a lot of enforcement costs), no more subsidizing foreign cars and trucks, no more budget sapping juggernaut, quite possibly, even reduced corruption. We return price mechanism to the economy. We help the people and the businesses which are most in need of help. The reward of success to the nation is enormous, so are the political resolves and the management skills required to implement this paradigm shift. Many well-meaning and enlightened citizens will no doubt want to rid the nation of such behemoth, but there will be many powerful vested interests even more determined to preserve the status quo. Su Thai Seng
Posted on: Sat, 07 Sep 2013 08:42:10 +0000
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