Subsidies to Go – Not Enough


Datuk Idris Jala, the CEO of Performance Management and Delivery Unit (Pemandu), made a major presentation he terms as the most unpopular decision the Government has to make since Independence (read here).  This entails the removal of subsides for 12 items to free up RM103 billion over the next 5 years to reduce the National Debt that stands at RM362 billion today.  He also shed light that there was RM74 billion of subsidy last year.  He expounds that this decision to remove subsidies is necessary for the Government to take so that we can avoid becoming like Greece who is under severe financial turmoil given their €300 billion (RM1.21 trillion) National Debt.

Herein lies the truths and falacies of removing such subsidies that a one sided removal without a balanced set of counter actions will cause severe hardship and fling the country faster into becoming like Greece if we are not careful.

This is the theme of this article:

The Rakyat will definitely support subsidy cuts when the Government is serious and active to chase down corruption, look seriously at cutting other unnecessary expenditures, and when the economic programs bring an increase to disposable income.  Until then, all subsidies cut are merely hot air to us Malaysians who will not bother with such Government proposals that is perceived very detrimental to all Malaysians.

Otherwise, what has changed in our Government spending behavior to warrant the Rakyat giving up on subsidies that will severely impact our lives?

Idris presented one side of the story.  If we believe the country is merely a set of numbers, he is definitely right.  We have many organizations to churn out numbers and if we do this and that, the forecast will be very good.  We have been fed such propositions for the past two decades and yet we fall into the state we are in all caused by the same Government but over 3 different Prime Ministers.  We should be a developed nation by 2020 yet we are staring into a historic massive National Debt in the coming years that Malaysia could be bankrupt by 2019.

So what happened? Did the numbers lie?  No, numbers don’t lie but the Rakyat may have been misled or not the whole truths have been told to us, only the nice parts and the ones that imply that the Government has been doing the right things all along.

Well, we are grateful for someone in the Government to admit that the country is in serious problem if we continue the path we are in, especially one in the mentality of subsidies.  The truth is always painful but at least we know the truth for once instead of being told by Najib that we are doing well when honestly the man on the street knows otherwise that we are not.

The Government argument that the subsidies for 12 items ought to be removed in order for the savings to be spent on economic growth activities and for that to cause income growth to the Rakyat appears to be very noble indeed.  When we earn more, we can afford to live without the subsidies.  This theory is at best a political rhetoric and serves very much a philosophical debate instead.  And here are some reasons why.

Other Expenditure To Go First

Many have argued that the size of our civil service has to be trimmed and not pursue getting into the record books as the largest number of civil servants over our population size.  This major expense has to be seriously reviewed but it is not a popular action for the Government because it will buck the 52 year trend that civil servants have a job for life.  Also the impact will be felt in the next GE13 by affected civil servants.

What about the ever burgeoning budget for defense expenditure?  It is always shrouded in secrecy because it is a matter of national security and there is no ceiling to the expense.  RPK has written a very enlightening article recently asking who is going to attack us that we have to spend so much money bolstering our defense.  Certainly, since nobody knows how much is really spent for defense and whether what is spent is worth it and since the Auditor General does not peek into this area, we should definitely consider a serious cut in expense that will put a large sum back into the Government kitty.

What about an independent committee to look into all the projects that have allocation and determine if the Government agencies are paying a fair deal or paying for what nobody uses.  There will be definite savings here.  Start with agencies that have the largest allocations for expenditure like in Education and Defense (see above).  Check out Agriculture if the money is actually well spent.  In general, Governments all over the world suffer from inefficiencies in project procurement, implementation and use.  In some cases, nobody will use what is implemented because of policy changes, inadequate understanding of user behavior, abuse of facility, lack of civic mindedness, etc.

Cannot Look At Subsidy Cut Only

It is always easy to look at cutting subsidies because it is the easiest to recover money, at least in theory and according to Idris Jala.  That is the low hanging fruit but is also the most painful action that will spur the Rakyat to react negatively towards the Government.  Reason being is that ALL RAKYAT will be affected and will further erode our standard of living and increase the cost of living without a corresponding increase in effective income.

Look at how Pak Lah caused a consumer inflation run by increasing the pump prices in 2008 that afflicted all of Malaysians, especially the less fortunate.  No income increase for many years and suddenly a rise in consumer prices.  When petrol prices came down, consumer prices remained.  History has shown that there is no push for prices to come down after it has gone up and Pak Lah gave everybody a reason to increase prices.  No matter what anyone may say that there will not be inflation, BALONEY!

Now, Idris Jala who is appointed by PM Najib, is proposing to unilaterally cut subsidies over time.  This will cause a further push to raise consumer prices and this time it will continue for the next few years if Najib gets his way to free up money for other programs.  Suffice to note that if this happens, inflation is almost definite and without a corresponding increase in disposable income across the board, all will suffer for sure.

Certainly, civil servants are getting some increase.  Private sector has seen little impact on salary increments over the past few years.  Given that there are fewer jobs, companies had to resort to retaining workers without increasing their cost (read with no increment to salary).  Then again, there are a large pool of unemployed chasing for few jobs too.  They will suffer.

Most experts agree that subsidies will have to go some time in the future.  How soon will depend on when the Rakyat will see bouyancy in our economy and a bullish rise in the salary scale – not too high to drive away our competitiveness but high enough to buffer subsidy cuts.  The experts will have to figure out the quantum but the Rakyat will know what hurts.

Of Corruption and Wastage

It will not be complete if we don’t pay attention to the area of corruption and wastage in Government projects.  Some say that this amounts to almost close to the savings of the subsidy cuts that Idris Jala is proposing.  If this be true, then this area must be the first to look at seriously as it impacts the cutlture and civic behavior of Malaysian society at large.

By corruption, it may be all the "commissions" that are "paid" to get a deal.  If the projects are within the country, it may mean that the price the Government pays is much higher than what it is worth and this excess will be "leaked" to individuals benefits.  If the Government actually gets to pay a fair price and yet there are "leaks", then there is not enough money for the companies awarded the projects to do a decent and adequate job.  Perhaps that’s why we have so many "bumbung runtuh" (roof collapse) cases in Malaysia which puts our engineering in a bad light.

Our corruption level may not be as high as some other countries but is bad enough that it has become cultural in many respects, especially in Government related agencies and civil servants.  Instead of them recognizing that their salaries come from taxes that the Rakyat and companies pay such that they are doing us a service, it is turned around that we who pay taxes are slaves to them.

Indeed, there are many agencies that have improved in their customer service and must be acknowledged and applauded but there are many more that have gotten worse.  Unless the Government puts a serious focus to curb the leaks immediately, the Government cannot look at asking the public to approve the subsidy cuts.  Save money on subsidies but waste money in corrupt practices.

In fact, the public will definitely support subsidy cuts when the Government is serious and active to chase down corruption, look seriously at cutting other unnecessary expenditures, and when the economic programs bring an increase to disposable income.  Until then, all subsidies cut are merely hot air to us Malaysians who will not bother with such Government proposals that is perceived very detrimental to all Malaysians.

Otherwise, what else has changed in the Najib Government from the past Governments?  After 52 years, every Government will tell the Rakyat everything they do is good for us, we will see growth, we will be a developed nation by 2020.  Now we are looking at the stark reality that the same Government is telling us that we may be bankrupt by 2019 if we don’t give up on the subsidies.

What on earth has our Government  been doing in the past 52 years?  Have we been duped while we have faithfully trusted them to take care of us and we paying our taxes and contributing to our EPF promptly?

The thought is scary indeed!

Recommended links of related topic:

1.  Masterwordsmith-unplugged "A State Delusion, Confusion or Corruption?"

2.  Lee Wee Tak "No Subsidies, More Debts for Malaysians"

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2 Comments to “Subsidies to Go – Not Enough”

  1. Hi there!

    Excellent post that compliments mine very nicely :-). You have cited pertinent arguments and mine has the data minue your knowledgeable input! Do link to my post if you can. Sorry, this old lady does not know how to do it :-(. Thanks!

    Take care and keep up the wonderful blogging. God bless you.

    Best wishes

  2. I second that from masterword smith and thanking for linking to my post as well

    u have touched on a necessary aspects in a concise succint and easy to understand manner

    in addition of the wastages, the desperates means and measures to raise funds might let me form impressions and judgement e.g. increasing traffic fines, frequent PNB unit trust issues, proposed GST and huge fines, trying to sell off toll concessionaires to Asas Seba, raising more and more debts…

    sigh!

    keep up the great work

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