Subsidy cut the better option

COMMENT
By KHOO KAY PENG

The recent restructuring of fuel subsidies shocked the nation. It seems like a drastic move but it is better than spending RM40bil a year on oil subsidies when there are other pressing socio-economic needs.

LAST Wednesday, Prime Minister Datuk Seri Abdullah Ahmad Badawi shocked the country by announcing subsidy cuts for both petrol and diesel. His main critics slammed the decision as a move to spike whoever would take over from him.

A Pakatan Rakyat leader surprised at the decision reckoned that Abdullah had forfeited his option to call for snap polls should there be crossovers.

From this observation, it is clear that Abdullah did not put politics above the interest of the nation.

It simply does not make economic sense to spend RM40bil a year on oil subsidies when there are other pressing socio-economic needs. Every year, almost half of the fuel subsidies go to private cars, more than 75% of which are single occupant.

If the Government can deliver on its promise to improve and enhance the current sloppy public transport system, this money can be used to fund other more pressing needs such as essential food items, education, affordable housing and healthcare.

Again, the decision made was correct and timely, but the manner in which it was done robbed it of the full credits it deserved. Only weeks ago, Abdullah and his deputy Datuk Seri Najib Tun Razak had given assurances that subsidy cuts would be deferred at least until August.

Flip-flop in the decision making process did not help to consolidate people’s confidence in the government’s management of rising oil prices and inflation.

Considering our current socio-economic condition, a gradual cut of subsidy is a better option. The people and industries need time to adjust to the new environment. These industries have operated in an artificial cost structure supported by subsidies since 1982.

However, I agree with some economists who observed that it would be better for Malaysia in the long run to adjust its subsidy structure now, before we reverse our position to become a net importer by 2014. Moreover, we cannot continue to subsidise the rich and foreigners.

With the subsidies significantly reduced, the Government must now deliver on its promises to reduce wastage and streamline the bureaucracy.

All government expenditures must be made accountable and transparent to the public. Abuses of public funds reported in the Auditor General’s report must be curbed. The Government must show more teeth in fighting corruption.

Ironically, the question is no longer whether the Government can or cannot deliver on its promises. For its own political survival, Barisan Nasional has no other choice but to perform.
Inevitably, the manner in which the cuts were made courted severe criticism from several Pakatan Rakyat (PR) top leaders.

Parti Keadilan Rakyat de facto leader Datuk Seri Anwar Ibrahim described the retail petrol price increase as “wanton in size and callous in effect”. He charged at the way the profits of Petronas were disbursed, and criticised the “wanton waste in government expenditure”.

Touted by the foreign press as the “prime minister in-waiting”, Anwar pledged, “I will resign immediately” if a PR government was unable to roll back the subsidy cuts.

DAP secretary-general and Penang Chief Minister Lim Guan Eng criticised the move as “economically insufficient and socially unjust”. He claimed that the new structure “does not deal with ensuring that fuel subsidies fulfil the intended objective of helping the poor instead of benefiting the rich”.

But surely the Government, including a PR-led one, cannot continue to support a subsidy structure which is unsustainable once the country becomes a net petroleum importer.
The promise to reverse the subsidy cuts is an attractive one. But for how long can the subsidies be maintained before our limited resources are eaten away?

Anwar has to justify why we should continue to pay through our nose so that six million drivers can continue to enjoy the subsidies.

If the increase of 78 sen is too drastic now, can Malaysians accept a RM2 rise by 2014 should the fuel price continue to climb?

By using the money saved from the subsidy cuts on other pressing needs, the Government is addressing the basic needs of the poor. On the contrary, the continuation of the fuel subsidies is detrimental to the interest of the poor, and benefits only the upper echelons.

On this part, the enforcement bodies must work tirelessly to contain unnecessary price increases triggered by the higher retail fuel price, and not merely pay lip service to its intention to manage inflation.

If Anwar wants to position himself as a strong candidate for the premiership, he must prove that he has a plan to do better than merely proposing to reverse the cuts.

It is more productive for his coalition to propose an alternative strategy on how to control retail fuel prices, to prepare for the reverse of position to being a net importer, to improving quality of life, to ensuring finite resources are channelled to food security and public transport rather than to organise and support street protests.

Can the PR do better? We are listening.

Khoo Kay Peng is a corporate consultant and an independent political analyst.