Plugging leaks in fuel subsidies
By S JAYASANKARAN
KL CORRESPONDENT
Business Times
May 05, 2008
KL can take steps to beef up revenue, stop leakages to rich
KUALA Lumpur is between a rock and a hard place.
Last year, when global oil prices averaged around US$70 a barrel, the government spent almost RM$53 billion (S$22.8 billion) subsidising fuel and gas so that Malaysians could continue being the beneficiaries of the cheapest fuel in the region.
But here's the rub - global oil prices have since climbed one and a half times and one shudders at the dent continuing subsidies will make to the government's balance sheet. In 2007, its revenues were around RM$140 billion.
The results of the March 8 general election showed that voters weren't happy with rising oil and food prices. In short, the ruling National Front is leery about any measure that might make it even more unpopular. What's a beleaguered Prime Minister to do?
There are a few things he might consider immediately. One, of course, is the scrapping of completely unnecessary projects. Why does the country need another palace for His Majesty the King when the present palace isn't even 50 years old?
Windsor Castle is a great deal older but the British actually take pride in the tradition implicit in that longevity. We might want to ponder that. And while we are at it, why even think of a RM$1 billion space programme for a country that's classified by the World Bank as a 'middle income developing country'?
We are sure the Prime Minister will find more wasteful projects around. He should halt them immediately for that way lies penury.
The next thing to contemplate is the issue of 'leakages' - the amount of money that's leaked out of an economy via things such as savings, imports and taxes. In many cases, these 'savings' and 'imports' are much more than they should be because the projects from which they were derived were grossly over-inflated.
In the go-go 1990s, for instance, economists were puzzled by Malaysia's growth figures (around 8 per cent on average) because, at the then rates of total investment (over 70 per cent of gross domestic product), growth rates should have been far higher (over 10 per cent, for instance).
Making bids for projects open and transparent would be the best way to stop giving any company excess profits. The practice of 'privatising profits and socialising cost' should also be curtailed as far as possible. Indeed, if these so-called 'leakages' could be cut by, say, 30 per cent, the government's budget deficit could just vanish.
Everyone agrees that the rich, and even the middle class, should not receive subsidies. It is completely inequitable from an economic point of view. But fuel subsidies do not just benefit all Malaysians, rich and poor, but other nations - Singapore and Thailand, for instance - whose citizens frequently cross the border to buy cheaper fuel, rice or milk.
That is not to mention the enormous arbitrage opportunities inherent in huge price differentials across borders, like smuggling. So long as there is opportunity, there will be smuggling.
One way out of this is the use of the MyKad (the national identity card) which is only issued to citizens and which comes with an electronic chip that can be utilised for other services such as e-banking. If it can be used for such things, what's to stop the government from using the Mykad for fuel purchases or, say, rice buys?
Every Malaysian is wired to some government agency through his MyKad in any case, so the government, through the Income Tax Department or the Employees Provident Fund, would know who is rich and who is poor. Put the best brains to this task and subsidising the rich could well become a thing of the past.
By S JAYASANKARAN
KL CORRESPONDENT
Business Times
May 05, 2008
KL can take steps to beef up revenue, stop leakages to rich
KUALA Lumpur is between a rock and a hard place.
Last year, when global oil prices averaged around US$70 a barrel, the government spent almost RM$53 billion (S$22.8 billion) subsidising fuel and gas so that Malaysians could continue being the beneficiaries of the cheapest fuel in the region.
But here's the rub - global oil prices have since climbed one and a half times and one shudders at the dent continuing subsidies will make to the government's balance sheet. In 2007, its revenues were around RM$140 billion.
The results of the March 8 general election showed that voters weren't happy with rising oil and food prices. In short, the ruling National Front is leery about any measure that might make it even more unpopular. What's a beleaguered Prime Minister to do?
There are a few things he might consider immediately. One, of course, is the scrapping of completely unnecessary projects. Why does the country need another palace for His Majesty the King when the present palace isn't even 50 years old?
Windsor Castle is a great deal older but the British actually take pride in the tradition implicit in that longevity. We might want to ponder that. And while we are at it, why even think of a RM$1 billion space programme for a country that's classified by the World Bank as a 'middle income developing country'?
We are sure the Prime Minister will find more wasteful projects around. He should halt them immediately for that way lies penury.
The next thing to contemplate is the issue of 'leakages' - the amount of money that's leaked out of an economy via things such as savings, imports and taxes. In many cases, these 'savings' and 'imports' are much more than they should be because the projects from which they were derived were grossly over-inflated.
In the go-go 1990s, for instance, economists were puzzled by Malaysia's growth figures (around 8 per cent on average) because, at the then rates of total investment (over 70 per cent of gross domestic product), growth rates should have been far higher (over 10 per cent, for instance).
Making bids for projects open and transparent would be the best way to stop giving any company excess profits. The practice of 'privatising profits and socialising cost' should also be curtailed as far as possible. Indeed, if these so-called 'leakages' could be cut by, say, 30 per cent, the government's budget deficit could just vanish.
Everyone agrees that the rich, and even the middle class, should not receive subsidies. It is completely inequitable from an economic point of view. But fuel subsidies do not just benefit all Malaysians, rich and poor, but other nations - Singapore and Thailand, for instance - whose citizens frequently cross the border to buy cheaper fuel, rice or milk.
That is not to mention the enormous arbitrage opportunities inherent in huge price differentials across borders, like smuggling. So long as there is opportunity, there will be smuggling.
One way out of this is the use of the MyKad (the national identity card) which is only issued to citizens and which comes with an electronic chip that can be utilised for other services such as e-banking. If it can be used for such things, what's to stop the government from using the Mykad for fuel purchases or, say, rice buys?
Every Malaysian is wired to some government agency through his MyKad in any case, so the government, through the Income Tax Department or the Employees Provident Fund, would know who is rich and who is poor. Put the best brains to this task and subsidising the rich could well become a thing of the past.
