Subsidy cut proposals

By Matt Siow - May 28, 2010

In an effort to save Malaysia from becoming bankrupt within the decade, Datuk Seri Idris Jala today (May 27) proposed several major steps to better manage the government’s growing spending on subsidies.

Among the suggestions include slashing subsidies for 12 items, which would see prices hiking for petrol, diesel, gas, electricity, sugar and flour, among other staples over the next five years.

But Idris also recommended handing cash rebates directly to consumers to offset the burden on the poor, similar to the practice mooted by the former domestic trade minister Datuk Shahrir Samad during the Abdullah administration.

Big savings could be seen only if the government focused on the “big ticket items”, stressed the minister in the Prime Minister’s Department heading the Government Transformation Plan (GTP).

The CEO of Performance Management and Delivery Unit (Pemandu) said his think tank had polled nearly 200,000 Malaysians via a text messaging system and found over 60 per cent were in favour of subsidy cuts and for the government to do it within the next three to five years.

He said it would cutting down on subsidies would save the government RM103 billion over the next five

“This does not mean we have more money to spend, but will help cut debt so we will not become another Greece where our national debt equals our GDP,” Idris said.

He further warned the cuts would be highly unpopular with voters but must be done if Malaysia is to avoid becoming another Greece, referring to the European nation sagging under the burden of a €300 billion (RM1.21 billion) debt.

“This is the most unpopular decision the government has to make since Independence,” Idris admitted today at a public forum here to present ideas to better manage the subsidy system.

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According to a simulation conducted by the lab, the impact of the price hike would be minimal.

It found that the diesel price hike of 15% or 21 sen would result in express bus fares increasing by one sen to 1.5 sen a kilometre.

The same quantum of increase would raise stage bus fares by 1.4 sen to 50 sen a kilometre, and school bus fares by one sen to 58 sen a kilometre.

For cooking gas or liquefied petroleum gas, the lab proposed a 10% increase by the middle of the year, followed by a 20% increase every year.

The lab projected that an increase of 15% in the price of gas would raise prices of food such as roti canai, nasi lemak, teh tarik and mee goreng by only one to four sen.

Metzelder says: As most Malaysians that are polled for their opinion about the subsidy cut agreed, which includes me.

I totally understand about the essential needs for it take place. Our subsidies structure is different unlike others in the world with comprehensive coverage, that even PR's and foreigners gained benefit from us.