Economy 101: The Small RM0.05 Increase Of Essential Good Price

(The very little money that we earn should be spent only on the essential items but their prices must be reasonable. The same goes for the Government who has access to limited taxpayers money. It should be spent on development and not on some fancy projects or subsidies. Photo by Karolina Grabowska from Pexels)

It Is Only RM0.05 Increase

Another sneaky increase from BN led Government but this is something we already anticipated since the day the Government opened its mouth on subsidies and the country going bankrupt.

Sugar is now 25 sen more per kilo (new price is RM1.70 sen per kg) while RON 95 petrol and diesel is up by 5 sen per litre (new price for RON 95 is now RM1.85 per litre and diesel is RM1.75 per litre).

Liqued petroleum gas (LPG) is also up by 10 sen. The new price is RM1.85 per kg.

(Source)

And of course, to ‘sweeten’ the price hike, we get this over-used, over-killed, over-abused statement:-

He added that fuel and sugar prices were still the lowest in the region.

I am all out for reduction of subsidies – it is the right to do – let everyone pay the actual amount. But then again, it does not mean the Government can pocket the money saved from subsidies into their own pockets. RM750 million is expected to be saved from this latest price hike but how much of it will be given back to the public?

Any attempt to divert the money saved from subsidies back to the public would also mean we need to plug the leakages that we been having in the system. Have we done that? Are we still looking at corruption, mismanagement of public funds, mismanagement of the economy and wrongful allocation of public funds for personal gains?

Better Management Of Taxpayers Money

At the speed we are doing things and the failure to go against those who have misused public funds in the past, it is likely we will still be with multiple leakages for now and in near future.

This is why there have been voices of opposition to the price hikes. It has never been on the issue of why we need to reduce the subsidies but rather what we have done with the subsidies saved.

Anwar Ibrahim of Pakatan Rakyat was quoted:-

Datuk Seri Anwar Ibrahim today criticised the Najib administration’s rationale for the latest subsidy cuts, pointing out that the savings of RM750 million was a pittance compared to the billions spent for other “careless” expenditures.

The Pakatan Rakyat de facto leader accused the Barisan Nasional (BN) government of spending billions to bail out troubled government-linked companies and to foot exorbitant bills from foreign consultancies employed to help improve the prime minister’s international image

(Source)

Mahfuz Omar of Pakatan Rakyat asked:-

“The government wants the rakyat to change their lifestyles…but it is not willing to change its style of managing the economy.

“The government is wasteful when it conducts direct negotiations (for its business operations) which is expensive. It could easily adopt an open tender system.

“It doesn’t seem to understand that every disbursement is public money,”

(Source)

Tony Pua of Pakatan Rakyat said:-

The question to the government is, given the financial constraints that the government is facing, why isn’t the government targeting the fat cats which are lynching off the tax-payers’ hard-earned monies first, before attacking the livelihood of ordinary Malaysians? (note: he missed another fat cat – the highway robbers toll concessionaires)

(Source)

Misallocation of National Budget

Whilst we are concerned with the reduction of subsidies for the people, we get to hear disturbing news like this:-

Anwar, who is also the Parliamentary opposition leader, further pointed out that just yesterday, the House was informed that the PM’s Department’s operational expenditure had reached over RM3.8 billion last year and had been allocated a budget of RM3.9 billion for this year.

“This includes expenses for secretariats for former prime ministers and for Permata, which is handled by the prime minister’s wife,” he said, referring to Datuk Seri Najib Razak’s wife, Datin Seri Rosmah Mansor.

We have yet to get a proper answer for the almost RM1 million advertisement for some politician’s wife and here we have another increase to the Government’s expenses – courtesy of cut down of public subsidies? Where is the “change your lifestyle” at the Government’s end?

Abuse of Business On Price of Goods

And another laughable matter that was reported along with the price hike is the impact on other consumer goods. It is no secret that a price hike in fuel and basic consumer goods is usually taken advantage of by certain quarters to increase the price of their goods (and services) substantially.

It is time to make the “killing” whenever the price of basic items goes up.

It is understandable if they want to pass on the increase of the price of raw materials to the end consumers but the margin of increase should be reasonable. Instead, we have people who not only pass the increase in raw material price to the consumers at many times fold but decides to make a substantial profit at the same time.

And you need not look far – just hop over and check the latest price of roti canai and teh tarik (it can be anything from nasi lemak, thosai, wanton mee, etc) is. Does the Government have enough resources (sigh, more expenses to the Government) to make spot checks and enforce the right price?

Tony Pua of Pakatan Rakyat asked the same:-

It is hence shocking to hear the Prime Minister, Datuk Seri Najib Abdul Razak, supported by the Performance & Management Delivery Unit (Pemandu) claim in their subsidy rationalisation fact sheet that the price increases will have “minimal impact” on households in Malaysia.

In the fact sheet, it’s “demonstrated” that the new teh tarik price taking into the impact of subsidy reduction of fuel and upward price adjustment would be around RM1.0155, or an increase of less than 2 sen.

The impact on other popular items such as roti canai was stated as being 0.24 sen per piece, 0.6 sen for rice, 6.3 sen for meat per kg and 1.05 sen for mee goreng.

Pemandu under the chairmanship of the Minister in Prime Minister’s Department Senator Tan Sri Koh Tsu Koon must be living in a parallel universe for having the audacity to publish such numbers which are at best applicable only in a fictitious and theoretical universe, and at worse, showing the complete lack of understanding of real world market dynamics on the price of goods and services.

I challenge Tan Sri Koh Tsu Koon to find me a mamak stall in Malaysia which will increase the price of teh tarik by a mere 1.55 sen or the price of roti canai by a minute 0.24 sen in the entire country to prove the “minimal impact” of the latest round of 5-in-1 price increase.

(Source)

Tony Pua (short of calling Koh Tsu Koon an idiot) has a valid point here – just how the Government is going to control the subsequent price increases on other consumer goods which is not under controlled items? The Government can ask the consumers to lodge complaints about the substantial increase but what the Government can really do against the business?

The fact that these items (roti canai, teh tarik, etc) are not controlled items (and they should not be) means the business is free to increase the price as they see fit. If consumers do not agree with the price hike of these items, they have an option to look elsewhere. That is how the open market works.

Curtailing Government Expenditures

The problem starts when everyone else starts to increase their goods and services prices and the Government will not be able to do anything.

Not with the current disposable income. And here is where the Government can come in because it will be very difficult to get the private sectors (who is governed by net profit at end of the day) to simply increase their employees’ salary and when it comes to the public sector, the Government is the employer and can determine how it can structure the salary scale for the public servants.

The Government can also curtail the leakages and ensure the money saved goes back to the public – by means of reduction of income tax (reduced tax due to Government’s expenses is now less), reduction of subsidies paid to IPPs and toll concessionaires (revise what the public need to pay these profit-making entities), improve on the delivery system to reduce wastage of time and resources and make annual allowances to those earning below the minimum wages (those who do not earn enough to be taxed but still faced with the substantial price hike).

Certainly, the above list is not exhaustive because what we are seeing is nothing but works of economics in motion i.e. income = expenses.

Final Say

If you faced with very high expenses (due to wastage, corruption and blatant profiteering) and a very limited source of income (now that we have dwindling petrol reserves), there is very little choice but to relook at your spending – can you reduce the net expenses or can you increase the net income or both?

At the moment, the Government is looking at reducing the expenses by shredding off the subsidies paid on behalf of the people but is it really the right option? Shouldn’t reduction of wastages, arrest of corruption and blatant profiteering be top of the list for reduction of expenses?

The Government need not look far on this – they already worked this out in NEM but that model somehow went missing after some quarters made some noise. That is why the reduction of subsidies (despite its merits) is dead wrong and highly questionable.

We want to see evidence of proper controls and enforcement to go hand to hand with a reduction of subsidies. Otherwise, we will be back on square one – the corrupt & rich making money at the expense of the poor.