Economy 101: Taxing Petrol Subsidy Gone But…

A long, long time ago, when the petrol price was increased, one “work-with-me” PM vowed to use the RM4 billion saved on petrol subsidy on the development of public transportation. Photo by sergio souza from Pexels

Of course, nothing happened to the improvement of public transportation and when called upon to be accountable to the petrol subsidy saved, only excuses after excuses were given in the end. The so-called RM4 billion saved simply went “missing”.

Considering the amount of money spent by the Government lately, RM4 billion might be a small amount to some but there is no clear line of sight on whether the money had gone back to the people (the refund of RM625 aside).

Now there are calls for reduction of Government’s petrol subsidy once again.

Reduction of Subsidies

Considering the fact of the global financial trend and the diminishing pool of national oil reserves, at end of the day, the subsidy has to go. That is the fact and we need to face this sooner or later.  The call for a reduction of subsidy is right and timely. In many sectors, subsidies using taxpayers money are bad and here’s why.

Idris Jala has made the right case for reduction of subsidies when he said:-

Subsidies only result in market distortion and they drain the government of much needed funds that could be better used for more strategic and pressing development projects for the rakyat.

The time for subsidy rationalisation is now.

We do not want to end up like Greece with a total debt of EUR300 billion. Our deficit rose to record high of RM47 billion last year.

If the government continues at the rate of 12 per cent per annum, Malaysia could go bankrupt in 2019 with total debts amounting to RM1,158 billion.

(Source: TheStar)

Why waste money to keep the price of things artificially low when the same amount of money can be used for the development and generation of the economy of the nation?

With the Government having more cash at the disposal, they can use it to ensure a better economic environment for business and people. This in turn may translate to higher business profit and taxable income for the individuals.

More cash reserve also means better investment opportunities by Government investment arm. It also means a better buffer to engage the poor and provide financial assistance to them. It also means we have more money to pay off our debts whilst we continue with strengthening our economy.

Perhaps a greater push for alternative energy to reduce the dependant on fossil fuel?

Managing Subsidy Saved

But here is where we start to worry…

When we look at the very people who are going to manage the money saved from the subsidy, it is no wonder why many are asking the question – why now (and not when we have plenty of oil lying around in our shores) and why the same people (why no change of lifestyle by the Government)?

To common Malaysians like you and me, the call to reduce the Government subsidy by the billions really sounds like this – more from the people’s pocket and more into the corrupt’s and greed’s pockets.

And the same echoed in Malaysiakini:-

Fiscal austerity is required only when you have a clean management of country’s wealth, otherwise all the rakyat’s belt-tightening will go into the pockets of greedy politicians and businessmen

Asking the rakyat to sacrifice and support the cutting of subsidies, and here they are throwing away the nation’s money.

How often do we read this type of news, but no one is sent to jail for misappropriation.

Good question – how many people who been caught for wasting public funds whilst still in Government office has been found guilty and severally punished?

What about the millions of ringgit which was wasted on an advertisement to congratulate a politician’s wife? What about the joker who wasted thousands of ringgit for a car plate number? Why they are not stripped naked and given the lashes for treating public funds as their own personal funds.

Subsidies on Toll

Out of the many subsidies paid out by the Government, one stands like a sore thumb – subsidy on the toll charges. Unlike the increase in petrol price which we cannot do much once we become the net oil importer, the same cannot be said of the increase in toll charges. What global event that causes the increase in toll charges?

The answer is NONE!

(No justification whatsoever for the increase of toll charges but the Government’s hands seems to be tied on this)

The only reason we are playing through our noses for a long time when we needed highways to manage the ever-growing traffic problems, some civil servants and policymakers did not do their duty (that is “to do all they can to protect public’s interest”) properly. Toll concessionaire’s agreement became lopsided agreement and accountability became a secret. So, why the public need to pay more for highway tolls when all is needed is for the Government to review and redraw the contract obligations.

Will the Government have enough courage to say “f-off” to the toll concessionaires when they come over asking for an increase of toll and demand for re-negotiations? Or they will just silently agree to it and let the people continue to suffer for it?

Policies on Economy

Najib, infamous for his call to people to change their lifestyle is yet to be proven as a leader who goes all out to manage the little resources that the country has and improve on the financial standing. No doubt, there has been plenty of talk on the topic but what about real action?

Something called NEM was cooked up but already there are objections to it. There is a think tank behind the Government (good for the PM) but no firm policies have been made (meaning think-tank’s recommendations may end up in the dustbin or in danger of major modifications due to political pressure).

No major overhaul of the corruption-fighting mechanism have been made – there seems to be an overwhelming tendency to go after the oppositions and where applicable, “small fishes”. Those who suppose to be accountable is still sitting comfortably in their chairs and pointing fingers at others.

What about the policies that promote the cost-cutting measure, not only at the public sector but also cutting across Government-linked companies? What happens to the KPI at GLC level? Just how much of the cost-cutting measures have been implemented and enforced?

The very fact that the Auditor General’s yearly report has not shown any good indication of cost-cutting measures in place and a blatant waste of public funds has been curtailed shows that Government has not been really serious to maximise the resources and source of income.

Cost of Goods

When the petrol prices went up, the price of a glass of teh-tarik at the local Mamak restaurant went up substantially. When the price of petrol went down, the price of the teh-tarik did not go down. The owner of the restaurant made plenty of profit by increasing all prices of the food items.

(Want to measure how Government’s decision to increase fuel price and toll affects our daily expenses? Just check out the “latest” price of teh tarik at your local Mamak restaurant)

The price of teh-tarik is just an example but an obvious sample where the price of petrol affects daily consumer goods in a big way. The price of sugar, flour and cooking oil is expected to increase and there is no indication that there will be close monitoring of other items’ price. If the price of 3 basic items is going up, rest assured, others will follow suit.

With the planned reduction of subsidies, the price of petrol, toll and others will also increase. With the increase in petrol and toll, we can only expect transportation cost to increase and when this happens, goods delivered will cost more too.

What the Government plans to do about this? How they are going to manage when the price of goods sky-rockets? Are they going to do what they have done in the past – simply complain about it but do nothing?

Poor Implementation & Enforcement

MCA President, a couple of days ago said:-

Weaknesses in the implementation of Government policies have resulted in the disgruntled Chinese community wrongly assuming the Barisan Nasional is not doing anything for them

What Chua Soi Lek has said is not something new – it is something everyone already had known for a long time now. Chua Soi Lek only talked about weaknesses in implementation but there is more to it than just this.

We all agree that there is a weakness in the implementation of policies but it does not happen only in Malaysia. So, we are not really alone in this but what we want is “less talking and more action”.

Have we find out where are the weaknesses and quickly plug the weaknesses so that implementation is done without delays or unfairly? Has this been done in line with the expected reduction of subsidies?

To keep talking about weaknesses without talking about plugging in the weaknesses is nothing short of plain ignorance. Same goes for the quality of enforcement in Malaysia where sometimes more bite for enforcement is tainted with political pressure.

Final Say

But let’s say that God was kind on Malaysians and decide to wipe out corrupted, racists and good-for-nothing politicians and Government civil servants from the face of the earth and replace them with true nationalist, professional and idealistic people. What happens next?

We will go for the reduction of subsidies willingly – it is necessary after all. Whatever the Government managed to save from these subsidies, then should be re-channelled to the people in form of tax relief, rebates, reduction of debt and certainly increase in taxable income. That is the right way to do, not the current way of pushing the buck back to the people whilst the politicians and the rich holdback and shake leg and whilst strict measures to handle the people’s burden due to increase of expenses is not been formulated and implemented.

We are against the reduction of subsidies, not because we want the subsidies to be kept going (forever and ever) – it is not good for the nation in the long run. We are against the reduction of subsidies because we know the subsidies saved will not be properly managed.