Fuel price hike wrong approach to fiscal reform: Institut Rakyat

ARCHIVES 2013

By admin-s On Sep 6, 2013

If the motivation to help those who earn below RM3,000 is genuine, then why make them suffer higher prices for goods and fuel in the months between now and when Bantuan Rakyat 1Malaysia (BR1M) x.0 is implemented?

Institut Rakyat

SEPT 5: In February this year, Prime Minister Najib Razak stated that the price of RON95 would be sustained in spite of the rise in global oil prices.

Come April, Ismail Sabri Yaakob, formerly minister of Domestic Trade, Cooperatives and Consumerism stated “Petrol is a major essential item and if the government increases the price, it will result in traders resorting to hiking their prices as well and this will burden the people,” said Ismail.

That month, Najib assured Malaysians that subsidies would continue under his administration as he was focused on controlling the rising cost of living. Then Barisan Nasional won the general elections in May. Four months later their promises have evaporated.

There are several problems with Barisan Nasional’s excuses for this week’s fuel price hike. These are typical for its ‘act first, deal with the problems later’ approach:

1. Shifting to more targeted assistance for the poor

Going by past performance, there is typically a lead-in time of about one to three months between tabling a budget and the distribution of BR1M handouts. How will the poor deal in the interim?

Furthermore, BR1M handouts are occasional ad hoc affairs, whereas fuel consumption is an ongoing daily expenditure for the rakyat. BR1M is not a solution for those experiencing an uncomfortably high cost of living from increased fuel prices. We also should remember that many Malaysians are out of pocket following Hari Raya festivities.

If we take the generous assumption that ad hoc cash handouts are a sustainable remedy for chronically low incomes, the gentlest approach for the rakyat would be to only reduce the fuel subsidy after the cash handout is applied. But this would still leave people deprived until the next round of handouts is approved.

Deputy Finance Minister Ahmad Maslan admitted as much in July when he said that, “With the [projected] BR1M increase to RM1,200 [from RM500] this will help cover household expenses for two months. The people will need to find their own means for the remaining 10 months.”

Perennial dependency on cash handouts will not reduce the subsidy bill. Najib spent RM2.9 billion of public money on BR1M 2.0. With the promised increases the BR1M bill will increase to RM6.96 billion. This RM4 billion increase in BR1M will more than cancel out the estimated RM1.1 billion the government expects to save from rolling back fuel subsidies.

Thus, the net result of the BN’s actions will be to increase both inflation and the subsidy bill.