Subsidy rationalisation the right move, says think tank: KUALA LUMPUR, Sept 5 — While there maybe some minor inflationary pressure on the economy, the increase of RON95 petrol and diesel by 20 sen per litre respectively last Tuesday is certainly the way forward. The Socio-Economic Development and Research Institute’s (SEDAR) executive director Ivanpal S. Grewal noted that it is the most appropriate move towards restructuring the methods employed in providing subsidies. “Our current method of giving subsidy is very much distorted, inefficient and wasteful. The whole idea of subsidy is helping the poor, not having those driving Ferrari enjoy the subsidised fuel as well. “The bottom line is that we have to better manage the subsidies and have to be more focused in helping those in need of assistance,” he told Bernama in an interview. Therefore, instead of giving out blanket subsidies such as huge petrol and gas subsidies, the government has decided to gradually shift towards direct cash assistance like IMalaysia People’s Aid (BR1M) for those earning below RM2,000 per month. MALAYSIANS HIGHLY SUBSIDISED Malaysian government subsidises and controls prices on many of essential items such as cooking oil, petrol, flour, bread, rice and others to keep the cost of living low. With the recent hike in fuel prices, the RON95 petrol now costs RM2.10 per litre while the diesel costs RM2 per litre. The price of RON97 petrol also goes up by 15 sen per litre today, bringing its price to RM2.85 per litre. However, over the years the subsidy bill has been ballooning and big across the board subsidies are not sustainable in the longer term. As for example, in 2007, the government spent RM40.1 billion in subsidies to keep the prices in check. In 2009, about 22 percent of the government expenditure was on subsidies, with petrol subsidies alone taking up 12 percent of the total. And from the RM30 billion subsidy bill this year, the fuel subsidy alone amounts to RM24 billion, the largest component in the provision. Due to the subsidises, Malaysians do not fill the pinch even when the world oil prices went up, unlike their Indonesian counterparts who faced a tough time when the petrol price went up by 33 percent in one go about three months ago. Economist and world economic institutions over the years have cautioned Malaysia on the perils of a huge subsidy bill and that the country has to overhaul its approach in helping the people. MORE EFFECTIVE METHOD IN HELPING THE NEEDY Therefore, one of the alternative is to adopt the direct cash assistance, similar to the one being implemented by Singapore, Hong Kong, Macau as well as Brazil, which is famous with its “Bolsa Samilia”, and Mexico with “Oppurtunidades”. “Bolsa Samilia” is a program that attempts to both reduce short-term poverty by direct cash transfers and fight long-term poverty by increasing human capital among the poor through conditional cash transfers. The “oppurtunidades” is primarily designed to target poverty by providing cash payments to families in exchange for regular school attendance, health clinic visits, and nutritional support. “In Singapore, such direct payment assistance is called Public Assistance scheme as the government there does not provide any subsidies to maintain low prices of essential goods and services,” said Ivanpal. About 2.1 million Singaporeans receive benefits from the scheme with those with incomes of S$24,000 (RM60,877) or less per annum and those living in homes with an annual rental value of S$20,000 or less get either S$100 or S$250 in cash monthly. TIME IS OF ESSENCE The other direct cash assistance given by the Singapore government include the Medisave top-ups that cover about 85 per cent of all Singaporeans above 65 years old and utility rebates for some 800,000 Housing and Development Board (HDB) households. “However, we just can’t do it overnight. For example, any drastic reduction to our current fuel subsidies will greatly impact our population, as cost of living skyrocketed as the prices of good and service will increase steeply. Remember what happened in 2007, when we had to suddenly raise the fuel price by 80 sen per liter after the world fuel price hit a record high? “That’s why as we restructure our subsidies on fuel and gas, the amount given through BR1M will also being adjusted and increased gradually until it reaches RM1,200 from current RM500,” he added. – Bernama dlvr.it/3vzJpN
Posted on: Thu, 05 Sep 2013 06:28:46 +0000
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