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Monday, January 4, 2010

Subsidies can’t go on forever

I AGREE with the Government’s move to reduce the subsidy on sugar and remove it for white bread. I was also happy that the Government reduced the subsidies on fuel.

Subsidies give us a false sense of economic security and well-being. They also give a false inflation indicator as the index is calculated based on the subsidised price and not the actual market price and cost. We then think we have more money in our pockets but the fact is that our purchasing power has gone down.

Because of the false sense of security subsidised pricing brings, we tend to be careless about our spending and maybe even consume more, which in turn chalks up a higher subsidy bill for the Government and taxpayers.

Subsidies are also like burnt money. They tend not to have a high multiplier effect on the economy, being given direct to the supplier. Malaysia’s total subsidy is about RM25bil-RM30bil. Imagine what the nation can do in terms of development, economic stimulus packages with that kind of money in the nation’s pocket instead of it being burnt.

Subsidies are bad for the economy in the long run. The gradual removal of subsidies, especially to the rich, must be implemented and welcomed.

Why should a person who can afford a luxurious huge oil guzzler of 3.0 litres or more, be given the same amount of subsidy per litre of petrol as a person driving a 1.6-litre car? In this regard, obviously, the subsidy on petrol is being enjoyed by the wrong group.

However, the Government still needs to subsidise the poor and the needy, especially for basic essential items like rice and sugar. Certain economic activities like padi planting, farming and fishing must also be subsidised.

These are all part of the overall “Food Security Programme” for the country. It is better to subsidise these activities and ensure domestic production of these food types rather than import from outside and be exposed to the whims and fancies of foreign suppliers.

The removal of subsidies should be done gradually and smartly. Agreed that this will be an unpopular move politically but it must be done to ensure the country’s competitiveness and survival in the long run.

The Government must clearly explain and justify to the rakyat the importance and the effects of the removal of these subsidies. At the same time, the Government must clearly show where all the money saved as a result of the removal of the subsides goes to.

A case in point is the reduction in the petrol subsidy. The Government declared that it would save RM4bil, which would be used to improve transport facilities and so on. Even if the ensuing global oil price rise had wiped out the RM4bil savings, this must be explained clearly and in detail to the rakyat.

The same goes for the savings for sugar, white bread subsidies and other subsidies in the future.

Though the Government means well, lack of communication and explanation will lead to confusion and speculation.

Remove certain subsidies and re-strategise on certain other subsidies to ensure the subsidies reach the target groups. At the same time, the Government machinery must be improved to ensure there is no abuse or wastage on these subsidies.

AHMAD IKMAL ISMAIL,

Ampang, Selangor.

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