Why Subsidies Help The Rich More Than The Poor
Professional economists and almost everybody including our nice FM know subsidies are a bad idea. But it seems nobody knows just what to do about them.
Here are my 3 reasons why subsidies should be dismantled:
#1
Subsidies do not reach the poorest and most vulnerable 40% of our people (the so-called B40 group) the targeted group the government wants to help out with the rising cost of living. For the B40 group, expenditure on transport and food constitute a higher percentage of their incomes compared to the middle class (M40) and upper classes, the top 20% (T20). A lot of Putrajaya's petrol subsidy for example unfortunately ends up benefitting the M40 and T20 groups that often have two cars or more.
A leading newspaper estimates some RM12 billion could be going to the top 20% income group (T20), noting Bank Negara Malaysia’s research in 2014 shows that only 4% of blanket fuel subsidies go to the bottom 20% (B20) versus 42% to T20.
A Finance Ministry report suggests that RM12 bn, representing 53% of Putrajaya 's petrol subsidy that is expected to top RM30bn this year actually ends up with the top 20% (T20 group). The poorest 40% (B40) -for whom the petrol subsidy is actually targeted -get only 15%.
In Thailand where petrol is not subsidised, petrol costs RM6 per litre. That's 3x the price of heavily subsidised RON95 in Bolehland!
#2
Subsidies cost a whopping lot of money that could be better used in spending on infrastructure projects that actually benefit the rakyat (Malay for hoi polloi), eg flood alleviation projects. Even Putrajaya concedes it's not feasible to keep on subsidising petrol, chicken and cooking oil. What's the cost of subsidies? Most people might be shocked to know subsidies will still account for a big chunk of Budget 2023. Subsidies in 2022 are estimated to cost Putrajaya RM71bn.
#3
An expat academic has put forward what I believe is a good idea : implement tiered pricing at gas stations. For reasons best known to our nice FM, Putrajaya is still dragging its feet on implementing a tiered mechanism for petrol prices.
"A tiered price system is one solution in which subsidies would apply for low volume purchases and would be removed for higher volume purchases." According to Professor Geoffrey Williams, "We need a quick study to find the optimal quantities and costs but for example, the current RON95 subsidised price of RM2.05 could be applied for purchases below 10 litres and the full market price of over four ringgit could be applied above that threshold." Professor Williams' excellent idea has the advantage of being relatively easily implemented at gas stations.
So why is our PM and his cabinet still not fixing this big problem now? I presume the Transport Ministry is not staffed by inept civil servants incapable of drafting guidelines for a tiered pricing system. That leaves the reasons for the tardy response to implementation of a targeted response down to our nice PM and his cabinet.
Perhaps it's a coincidence a GE is around the corner. Maybe Putrajaya doesn't want to annoy a lot of the 10.1m voters that happen to own motor vehicles.
Based on a Transport Ministry's report there were 21,709,492 active vehicles in the country up to September 2021, and assuming the average person owns two vehicles, I arrive at a figure of 10.1m.
Of course some Orang Atas in the T20 group (as reported by online media websites, see below) own three or more vehicles. For example the leader of a major political party in Bolehland reportedly has 20 motor vehicles and 9 high powered motorcycles according to one online media website. A former PM has 6 gas guzzlers (5 Mercedes Benzs and a Bentley Continental Flying Spur) and 2 motorcycles according to another online media website.
