Most people should know by now that the government is now recanting its initial plan to further reduce fuel subsidies in our country.
Even the marginally intelligent observer would recognize this move as a method of appeasing an irked electorate and to rebuild the establishment’s image as a generous and benevolent government.
Yet, I’m truly disappointed with this announcement.
This one moment gifted to the government to come good on its promise of transparent government and accountability, they sell down the river to distribute as an economic handout.
Once again, they misconstrue the demands of the citizens. We don’t really want money shoved down our throats when it seems convenient - some may beg to differ on the money part. In fact, people really aren’t that averse to unpopular decisions. We just want a system of governance in which federal decisions are explained in painstaking detail such that even the most simple-minded folk have an idea of what’s going on.
When faced between a choice of displaying true character in government and unreasonable demagoguery, the government chooses the latter. And they wonder why they lost so many votes.
Needless to say, I’m actually in favour of the reduction of fuel subsidies. It irritates me to see the opposition front politicize the issue of rising commodity prices without actually providing the people with strong economic reasons other than the increase in the costs of living. But of course, most people don’t stop to question the economic ramifications of most decisions, so long as they can make up next month’s rent. That doesn’t leave much by way of discussion.
First, I must establish that I’m not an environmentalist. Not in the conventional sense anyway.
I think 4.0L V12 engines are as good as sex. If I had a chance, I’d fly first class to the grocery store down the road and back. I wash my car with a hose instead of a bucket and I’m proud of it. But the logic behind this is quite simple, isn’t it?
The higher the price of fuel, the less we use. Yet, we’ve reached such a level of dependency on petrol and diesel that there seems to be an insatiable thirst for the black stuff.
According to a UNDP report, Malaysia produces USD$4.1 of GDP per unit of energy used. That puts us well behind countries such as Japan, the United Kingdom and Denmark. More telling is the fact that we’re also placed behind countries such as Colombia, Sri Lanka and Namibia. Sure, one can make an argument that this indicator does not take into account the level of industrialization and population differences but you have to admit, at USD$ 4.1, we have a terrible rate of fuel efficiency.
The argument against fuel subsidies are not and should not be limited to the environmental aspect of things.
Such, we’re reaching peak oil, polar bears are drowning, George Michael is touring North America again and Al Gore deserves his Nobel Prize.
But the economic aspect of things is much more telling of the situation.
I picked up this interesting piece sourced directly from the National Economic Planning Unit. The numbers are slightly dated but that does nothing to dampen the truth behind them. In 2005, the Government subsidized each litre of petrol by 24 cents and diesel by 59 cents. On top of that, the government also waived a sales tax of 58 cents per litre of petrol and 19 cents per litre of diesel.
Fuel subsidies are expected to cost the government RM35 billion this year. The waived sales taxes mean that the government forfeited RM 7.6 billion in 2005.
If you think those come up to mind-boggling numbers, well, no shit, Sherlock. Imagine what the federal government could’ve done with all that money. The schools, hospitals, transport systems and security forces that could’ve benefited from the injection of cash.
Essentially, what we’re doing is creating price controls which any free market trader will tell you make zero economic sense because our prices do not reflect global prices.
By utilizing government funds to maintain this price control, we are perpetuating several problems:
1. The presence of an unnecessary deficit in the government budget.
2. An opportunity cost of under-funded projects in the areas of education, transport, healthcare and defense due to the diversion of funds into subsidies.
3. A system of high taxation as the Government has to get the money to fund the subsidies from somewhere. Guess who’s paying? The abolishment of fuel subsidies will inevitably lead to something called cost-push inflation.
Essentially, the prices of everything will go up, consumers lose confidence in the economy which precipitates a reduction in expenditure leading to an economic slowdown.
Fuel subsidies appear to be the only way for us to avoid such an unfortunate outcome.
But are we engineering a solution or merely a band aid response, hiding the problem till it metastasizes into a cancer too dangerous to ignore?
Our insistence on maintaining fuel subsidies merely feeds into the psyche that they will forever be in place to protect our interests and shield us from the perils of open market prices. Does it sound like a similar policy? No points for guessing, but it’s a three-letter abbreviation starting with a ‘N’ and ending with a ‘P.’
As it stands, we are one of the very few countries in Asia that continues to subsidize fuel prices. I cite the example of Singapore where Singaporeans have to pay RM4 per litre of petrol.
A lot of people are going to scoff at the idea of comparing petrol prices with a country with obvious financial advantages over us, but that’s just escapism. Sure, their currency is stronger than ours and according to logic, when the conversion of their currency occurs, their prices don’t differ with ours by much. But taking into account purchasing power parity - a system in which you compare what a dollar of local currency buys in a local market with what a dollar of foreign currency buys in a foreign market - then the aforementioned perspective is altered drastically.
Sure, the price of a carton of eggs in Singapore may be S$5, the same as our RM5; but you can only get so far in life with eggs.
The cost of living in Singapore is definitely much higher.
We’re talking about overpriced property prices, exorbitant healthcare costs, the 7 percent Goods and Service Tax and of course, the infamous Electronic Road Pricing system that robs unsuspecting drivers most surreptitiously.
Still think we’re having it worse than our friends down south? Over there, if you’re drawing S$3,000 a month, you’re considered borderline poor. Yet, they still find it in them to brave the lack of a fuel subsidy. So what makes us so different?
Simple, corruption. Even if, by some stroke of persuasive genius, the masses were convinced of a gradual but absolute abolition of fuel subsidies in our country, many people will still question - correctly - if the savings will trickle down to the citizens and improve our welfare or merely go into the construction of another Zakaria’s Home of Fun and Adventure?
This is where the opposition rightly comes into the picture. Instead of chastising the government for their efforts to do away with a money-draining policy, they should work instead to ensure that any savings as the result of the abolition of subsidies will go to the right areas.
Table a resolution in the Dewan that mandates all fuel taxes be spent on the development of alternative energy sources. That way, we will actually be paying for the sustainable development of our country’s resources. Impose a capital gains tax or a windfall tax on the local petroleum conglomerate Petronas requiring them to channel a percentage of their profits into alternative fuel ventures.
Argue for the upgrade of public transportation systems nationwide to ease the burden on our overcrowded highways. Fight for the more efficient usage of non-renewable fuel sources such as petrol. If you’re going to politicize an issue, make it something that will change our fortunes in the next 30 years instead of quibbling over how much prices will change tomorrow.
On this one issue, I find fault with both ends of the spectrum: the government for its acti ons reeking of accommodate-ist misguidance and the opposition for failing to demonstrate that they can, when it results in the common good of all people, look beyond partisan politics and actually work with the establishment.
ANDREW WONG
TheCICAK.
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