Scrap support slowly, say economists
KUALA LUMPUR: Economists, non-governmental organisations and consumer associations came out in support of the government's move to reduce or even scrap subsidies - but most cautioned that this must be done gradually.
"If consumers want to use more than the quota, then they will have to pay the unsubsidised price. This will expose consumers to the actual price of the goods and the government can gradually withdraw the subsidies."
Malaysian Employers Federation executive director Shamsuddin Bardan said if the subsidies were withdrawn abruptly, it would cause a sudden increase in prices of subsidised items.
"It will create a negative shock to the business sector and consumers.
President of the Consumers Association of Subang and Shah Alam, Datuk Jacob George, said the government should block the abuse of subsidies, looking seriously at the seepage in the distribution system of the subsidies.
Muslim Consumers Association of Malaysia project director Noor Nirwandy Mat Noordin said the government must reduce expenditure on grand events before seeking suggestions to reduce subsidies.
"Some unnecessary functions like the launching of events are a waste of a lot of money."
He said the government also needed to find a way to protect the middle- and lower-income groups by reducing the subsidies for the rich.
However, he said the main concern was to tackle the issue of fuel subsidies by firmly blocking foreign-registered vehicles from purchasing subsidised petrol and diesel.
Consumers Association of Penang research officer Uma Ramaswamy said subsidies should be completely removed rather than finding ways to reduce them.
She said money that was used for subsidies could be used to provide a more efficient public transport and improve education and health services.
"More aid can be given to the poor if subsidies are removed. The government must prioritise the lower-income group," she said.
AmInvestment Bank economist M. Manokaran supports a gradual reduction of the fuel subsidy.
"Although the government is keen to reduce the subsidy levels in order to trim the fiscal deficit for the year, we are of the opinion that it will not be a total removal. A gradual reduction of subsidies would be most welcome."
He estimated that the new mechanism would probably push up the prices of petroleum products by as much as 20 to 30 per cent, which is between 40 sen and 50 sen per litre.
The hike would lead to increased inflation, which reached a 15-month high of 3.0 per cent in April.
"Based on our sensitivity analysis, a flat adjustment of 10 sen in the prices of petroleum products in September will push up the transportation index (15.9 per cent of total Consumer Price Index) by slightly more than 3.0 percentage points.
"However, with an estimated 50 per cent of the population under the subsidised scheme, we reckon the first-round and second-round effects will push up the broader inflation rate by 0.4 percentage point."
If the new scheme involves a 40-50 sen hike, the overall CPI will accelerate sharply by 4.6 per cent to 5.0 per cent in September, from the current level of about 3.0 per cent.
Federation of Malaysian Manufacturers (FMM) president Tan Sri Yong Poh Kon, meanwhile, said manufacturers were also looking to other items which are price controlled, like condensed milk.
"If items like these are 'de-controlled', manufacturers don't have to wait too long to get approval for prices to move."
Yong believes that with almost all tariffs in Asean eliminated when the Asean Free Trade Area (Afta) is fully realised in 2010, Malaysian consumers will have increased choices in the market.
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