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People now understand that subsidies must end

 

2010/05/30
By Fauziah Ismail

THERE is an end to everything, to good things as well, says the father of English literature, Geoffrey Chaucer.
And this saying aptly describes what the government will be doing over five years with the subsidies.

When it will start will depend on what the cabinet decides with the proposed subsidy rationalisation roadmap, drawn up by the Subsidy Rationalisation Lab headed by Datuk Seri Idris Jala, after taking into consideration public feedback it received during the open day on Thursday.

Critics say Idris, a Minister in the Prime Minister's Department, applied "scare tactics" when presenting the plan to enforce the government's move to cut the subsidies.

He had stressed on the immediate need for subsidy rationalisation or else "we have a time bomb on our hands".

"We do not want to end up like Greece," he said, adding that the nation could go bankrupt by 2019 with debts totalling RM1.158 trillion.

But others think otherwise.

What Idris, who is also the chief executive officer of the Performance and Management Delivery Unit (Pemandu), did at the Kuala Lumpur Convention Centre that day was to give the facts right smack in the face.

This was the first extensive "briefing" on the subsidies that the government had been dishing out since Merdeka.

And it is also the first time that the government is directly engaging the people before a decision is reached on the matter.

There were 93 slides in Idris' presentation and all were in the simplest language.

But this is not the government's first attempt at getting public support to reduce subsidies.

Ten years ago, the then National Economic Action Council headed by its executive director, Tun Daim Zainuddin, who was also minister of special functions, had explained the need for reforms.

Statistics and charts were presented but it was too complex to comprehend. There was too much public resistance then.

Malaysians have all forgotten that subsidies are but temporary measures to overcome short-term setbacks and limitations.

A subsidy, according to a business dictionary, is an economic benefit (such as a tax allowance or duty rebate) or financial aid (such as a cash grant or soft loan) provided by a government.

This is either to support a desirable activity (such as exports), keep prices of staples low, maintain the income of producers of critical or strategic products, maintain employment levels, or induce investment to reduce unemployment.

The basic characteristic of all subsidies is to reduce the market price of an item below its cost of production.

The government had been giving subsidies since Merdeka. And because it had gone on for so long, Malaysians have accepted it as a norm.

At the open day, Malaysians were told that the country was one of the world's highest subsidised nations, spending RM74 billion last year.

The bulk of it was for the social sector (RM42.4 billion), fuel and energy (RM23.5 billion), infrastructure (RM4.8 billion) and food (RM3.4 billion).

And they were told that the government has been giving the subsidies to the wrong income group. The poor, the target group for the subsidies, only got RM1.7 billion of the RM74 billion. Subsidies for fishermen were the smallest at RM200 million.

The biggest beneficiaries were students (RM30.8 billion), consumers (RM22.9 billion), companies (RM18 billion) and other groups (RM400 million).

Besides benefiting the wrong groups, there were also leakages and abuse which led to over-consumption and over-production.

A revision and rationalisation would result in a more targeted plan that would benefit the right demographics such as the poor and the vulnerable.

It is heartening to note that there is now a general acceptance towards the plan to reduce subsidies. This is probably because there is better understanding among the public on why the government has to do it, what it will do, how it's going to be done and how it will affect them.

The outcome of Pemandu's SMS and on-line poll, carried out in a short span of time prior to the open day, reflected this.

Out of 191,592 respondents, 61 per cent answered "yes" to the question as to whether subsidies should be reduced while 66 per cent wanted the subsidy reduction to be carried out between three and five years.
 
Resource : News Straits TImes