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It is clear that only long-term planning and effective policies to actually raise the real income levels of the rakyat and also to find a cheaper alternative source of fuel is the course of action. THE MALAYSIAN INSIDER
There was a time when for one ringgit, you could get at least three roti canais. Now you’d be lucky to get one. And the same size as before.Our money is small. Very, very, very small, to paraphrase Shebby Singh’s favourite quote on ESPN. Notwithstanding the weakening US dollar. It would be smaller if it wasn’t for the Umno-led Barisan Nasional government's moves to subsidise most of what we consume. But that is not an efficient way to use our natural resources and our reserves. Inflation will continue to be a burden on the rakyat and the government has the responsibility to contain it. The soaring prices of goods and services will continue to erode their incomes and standard of living. The RM40 billion oil subsidy a year at US$70 per barrel does help somewhat in cushioning the economic hardship of the rakyat but, unfortunately, the main disincentives for this subsidy are: • The distribution of the subsidy is inequitable; the rich tend to enjoy this subsidy more as directly they are the ones spending more money on petrol. • The subsidy is prone to abuse with the smuggling of our fuel to neighbouring countries as arbitrage opportunities exist because of price differences (The 'untouchable' multi-millionaire diesel smuggler). • The subsidy becomes unaffordable as global oil prices climb higher. In my professional opinion, subsidies are never a solution for the long term. By definition it is a form of financial assistance paid to a business or economic sector and usually it can be used to support businesses that might otherwise fail or to encourage activities that would otherwise not take place. In our case we subsidise oil to make it cheaper for the rakyat to purchase for personal consumption and also industrial consumption. But as reasons explained earlier our oil subsidy is prone to distribution inequality and abuse. It is clear that only long-term planning and effective policies to actually raise the real income levels of the rakyat and also to find a cheaper alternative source of fuel is the course of action. The reality is global oil prices have jumped from US$70 last year to US$116 presently, posing the dilemma that we may have to extend such a subsidy in the short term, and the Barisan Nasional government is willing to listen to proposals (http://thestar.com.my/news/story.asp?file=/2008/4/27/nation/20080427160812&sec=nation). So it is important to have a proposal that restructures the oil subsidy to make it free from abuse and to ensure a more equitable distribution for the benefit of all, not just a section of the population. This will also ensure that windfall profits earned by the national oil company are returned to the rakyat. However, to ensure that the extra funds that are now available, we will need a mechanism that is existing, simple and low in administrative cost to implement. We must also consider that this new mechanism must be easy and cheap to implement and be free from arduous bureaucracy and possible corruption. I propose that the RM40 billion now spent as subsidy to be transferred directly to the rakyat and the best mechanism for this purpose would be to through the EPF. Of course, one must realise that the RM40 billion is not all cash as it also comprises taxes that the Government forgoes from the oil companies. There are currently 11 million account holders in the EPF and giving RM200 every month to all account holders will give a more equitable distribution than a direct subsidy of fuel, be it petrol or diesel. And, of course, let the people be responsible for spending their money, instead of griping about administrators spending it willy-nilly or for mega projects. Using the EPF as a mechanism enables us to leverage an existing method and with funds going straight into Malaysian pockets, cut the abuse through smuggling and unfair use of the subsidy. Through the EPF we will also encourage greater savings if the rakyat does not withdraw the money received. It will contribute towards their retirement. It will also encourage more entrepreneurs and others to open up accounts with the EPF. But I must remind that such a measure must be in the short term as our focus should be towards long-term planning, effective policies, a cheaper alternative source of fuel that will also preserve the environment. But what is better than to have a short-term solution for the oil subsidy that provides the money straight into the rakyat’s pockets? Datuk Nur Jazlan Mohamed is a two-time MP for Pulai and writes an occasional exclusive column for The Malaysian Insider. He blogs at www.jazlan.net
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