Monday, September 9, 2013

COMMENT: It’s time to plug leakages

By Habhajan Singh

Subsidy reduction makes good economic sense when there is overwhelming proof that part of the money doled out is not reaching the targeted groups. This base argument, while bitter for many, will make better sense if the government shows equal resolve in getting a handle on issues pertaining to leakages.

Yesterday, the government announced a price hike for petrol RON95 and diesel, the most widely used fuel for Malaysian cars, following a reduction in fuel subsidy. With the general election (GE) out of the way and the international rating agencies increasing their pressure on the nation’s sovereign rating, there is no better time to act.

The move comes after the maiden meeting of the newly formed government’s fiscal policy committee. It’s a powerful outfit made up of the prime minister, deputy prime minister, finance minister II, Bank Negara Malaysia governor, government chief secretary, secretary general of the Treasury and the Economic Planning Unit minister in charge and its director general.

After the meeting of the committee yesterday, Prime Minister Datuk Seri Mohd Najib Razak announced the 20 sen per litre reduction in subsidy for the RON95 petrol and diesel. At current prices, it works out to a total subsidy savings of RM1.1 billion.

“It’s a process of fiscal consolidation, the market will be more confident if we are able to bring down our fiscal deficit,” he told reporters at a press conference yesterday. That statement is aimed at the international rating agencies which have trained their eyes on Malaysia, with Fitch Ratings having recently downgraded the nation’s sovereign credit rating outlook.

This marks the first major fiscal consolidation attempt on the part of the Najib administration post-GE 2013. As we can see, our economy is up against an unstable global economy. Being an exportheavy economy, we will not be spared what is happening out there in the world.

Fuel subsidy will always remain a burning issue. In neighbouring Indonesia, riots erupted when it hiked fuel prices.

In Malaysia, the collective reaction has been, thankfully, much more restrained. Yes, in the past, people have taken to the streets. But by and large, the rakyat probably appreciate that this piece of market distortion cannot go on forever.

How not? Even the rich folks, being driven in their high-powered vehicles, enjoy the fuel subsidy. So do the tourists. A free-flowing fuel subsidy does not make economic sense.

Hence, the rakyat should welcome the reduction in subsidy in fuel, if there are proper mechanism in places to ensure that the vulnerable groups within their midst are taken care of. This is where BR1M comes into play. That’s short for Bantuan Rakyat 1Malaysia, a cash aid to the lower income group.

The administration is promising a higher BR1M payout when it unveils the proposed federal budget in Parliament next month. In the long run, the administration is also promising to widen the safety net for the less fortunate.

At the same time, it is high time that the administration also train its eyes on plugging leakages.