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Saturday, October 4, 2014

Subsidy cuts, the double-edged sword for Najib Razak

Subsidy cuts, the double-edged sword for Najib Razak
As the night fell, gas stations across town were packed with vehicles whose owners had rushed to fill their vehicles with the last tank of RON95 at RM2.10 per litre or diesel at RM2 before the clock struck twelve.
The domestic trade minister said the 20 sen rise would not have severe influences but those vehicle owners making a bee line for gas stations on Wednesday night would hardly be convinced.
They didn't go there for nothing. Indeed there were some who drove their luxury sedans into the gas stations that night, trying to save every single dime possible. But most of the car owners made every effort to fill their tanks before midnight under tremendous economic pressure.
Car ownership is very high in Malaysia, but unlike other countries with similarly high car ownership, we don't earn as much. In other words, we have to set aside a bigger part of our disposable income for the purchase of cars and fuel.
Once the fuel prices have gone up, the impact on Malaysians is going to be more obvious as bigger parts of our disposable income will be eroded. This will subsequently affect our quality of life, and will have a domino effect on other goods.
Malaysians will argue that we should enjoy cheaper petrol given the fact we are an oil-producing country. So why should the government increase petrol prices?
This is a question that can be argued for another ten years without a conclusion.
Judging from the government's policies and economics, rising fuel prices have become a necessity and rationalised measure.
Government statistics show that the government has forked out RM21 billion to subsidise petrol, diesel and LNG every year, amounting to almost 62% of all government subsidies. This astronomical sum of money has become an enormous burden on the part of the federal government, robbing the government of available funds to develop the country and sending the fiscal deficits and debts soaring.
Economists are of the opinion that subsidies are a kind of wastage and will not bring about actual economic growth. Instead, they will only deepen the people's reliance on the government.
To be more rational, the government should have invested the money in education, healthcare services and infrastructure or other development projects. In the long term, such inputs will bring about real economic growth and increase the income of Malaysians.
Despite the fact we are an oil-producing country, our oil revenues should be better deployed on development projects and not cheaper petrol. Moreover, with our oil exports shrinking by the year, such subsidies are hardly sustainable.
It is very true that rising fuel prices have taken a toll on Malaysians' day-to-day lives. And the economists' and government's reasons to hike the fuel prices are not wrong, either.
But Malaysians should rightly tell the government that the money saved from fuel subsidies must be fairly and effectively used to promote socioeconomic development and not to be dumped into inefficient bureaucratic and political manoeuvres. – mysinchew.com

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