Fuel subsidies have no doubt been a boon for Malaysians, of whom many rely on private transportation as a primary mode of commute. As of 2011, the total number of registered vehicles on Malaysian roads had reportedly surpassed 21.25 million units.
While subsidies usually start as an attempt to shield citizens from the pains of price increases in global markets, long-term subsidy initiatives are expensive and they eat up national budget.
Consider this: at the time of our independence in 1957, Malaysia’s population was 6.3 million. In 1971, when the New Economic Policy (NEP) was introduced, it had grown to 11 million.
Fast forward 2014, and the size of our population is now estimated to be around 30 million, and is estimated to balloon by another 10 million by the year 2040.
A growing population can generate economic growth. However, an increase in headcount also comes with greater subsidy volume, which can end up breaking our national budget.
Findings from a paper done by the Malaysian Institute of Economic Research (MIER) found that the subsidy bill in 1990 was RM500 mil. In 2010, the amount had escalated to an alarming RM23 bil. Imagine how much more the bill would be if we add in another 10 million people in the country!
Blanket subsidies that have been offered by the Government had also led to over-consumption and wastage, especially when high-income groups are also reaping the benefit of subsidies meant to assist the poor. Over time, the nation can become over-dependent on subsidy provisions and may be unable to adapt to real-world prices.
Although subsidy removals are often unpopular with consumers, the cut-back on subsidy expenditures is necessary in ensuring the long-term sustainability of the national budget and in elevating the country to high-income status by 2020. Savings on fuel subsidies will instead be channelled on infrastructure and development that would directly benefit the welfare of the people.
The successful implementation of float system variations in developed countries like Australia, China and the United Kingdom, as well as growing economies like Singapore and Thailand is a healthy indicator that the new pricing mechanism will move in synergy with Malaysia’s subsidy reform plans toward greater efficiency and effectiveness in managing our national funds.
IMONEY