Wednesday 3 October 2012

Who benefits most from subsidies? — Lim Sue Goan

OCT 3 — The huge amount of subsidies in the Budget 2013 has triggered a question over the effectiveness of the existing subsidy system. The rich and corporations have benefited the most from it, rather than the poor.

The day after the Budget was tabled, sugar refineries have notified retailers to raise sugar prices by 20 sen. The move to slash prices is always slow but when it comes to raising prices, it is lighting fast. Would subsidising necessities benefit the people, or business operators?

It was rumoured that some industrial operators have taken advantage of legal loopholes to buy large quantities of diesel from petrol stations, causing shortages in Johor, Malacca and Perak. Subsidised diesel and petrol have been smuggled and abused. Rich people with big cars can enjoy more subsidised fuel compared to the poor with small cars. Many sport utility vehicle and four-wheel-drive cars are also consuming diesel.

The government will allocate RM386 million to introduce the price uniformity programme and ensure the prices of essential goods in Sabah, Sarawak and Labuan are sold at lower prices through the opening of 57 Kedai Rakyat 1Malaysia (KR1M).

Domestic Trade, Co-operatives and Consumerism Deputy Ministry Datuk Tan Lian Hoe pointed out that the government might provide subsidies to shipping companies. Why don’t they just repeal the cabotage shipping policy to directly ship goods to Sabah, Sarawak and Labuan without going through Port Klang?

In addition, Energy, Green Technology and Water Minister Datuk Seri Peter Chin Fah Kui said that with the rising international fuel prices, including coal and natural gas prices, tariff adjustments will be an inevitable trend in the future.

The government gives many subsidies to independent power plant operators to maintain “cheap electricity tariffs”. However, the tariffs will still have to be adjusted eventually. The rich and the poor have to pay the same tariff rates. The poor might not afford even an air conditioner but the rich might have installed a dozen of air conditioners. The subsidies have eventually given to the rich.

From 2010 to July 2011, the government had allocated RM36.7 billion under the National Key Results Areas (NKRAs) for various subsidies and assistance, including the establishment of the KRIM, the Menu Rakyat 1 Malaysia and the 1 Malaysia klinik. However, these benefits can also be enjoyed by the rich.

The government also provides subsidies to other companies. According to Proton’s financial report as of March 31, 2011, it had received RM175 million of R&D incentives. The government has not studied whether these kinds of subsidies are effective or not, as well as to what degree the people can enjoy the benefits.

Since there are many loopholes in the existing subsidy system, the prime minister said when delivering his Budget speech that the government will change the bulk subsidies into targeted subsidies.

I believe that the government will implement the subsidy rationalisation programme and goods and services tax (GST) after the general election to cut subsidies and increase tax revenues, and use the money to assist the poor and disabilities. The assistance for these targeted groups will be increased to help them cope with the increasing cost of living.

The minimum wage policy is meant for the same target. However, raising salaries while prices are rising will eventually raise commercial and industrial costs, causing the final products to lose their competitiveness in the international market.

Moreover, strengthening the people’s assistance scheme might lead the country towards the European welfare state system, which could turn the country into a lazy state.

Malaysia should learn from Hong Kong and Singapore to first manage well the national finance and return the fiscal surplus to the people. A set of fair social policies is also essential to help the poor buy a house and solve education problems.

The existing subsidy system has failed to lead the poor out of poverty while the resources have flown into the pockets of the rich. Subsidies are easily misused or abused and it is now the time to change the course. —

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