Public should support measures to reduce subsidies

The Consumers Association of Penang (CAP) supports the Government’s initiative to reduce its subsidy bill of RM74 billion in 2009, which is more than its development expenditure of RM51.2 billion in 2010.

Of concern here is the long term survival of the country.  If we do not act now to reduce this massive bill, we will pay dearly for it in the near future. Subsidies should therefore only continue to be available to the needy.

However the aim of the removal of subsidies should not be solely to reduce the budget deficit.  Removal of subsidies should be part of a comprehensive plan on national financial management whereby eliminating wastage and corruption also plays equally important roles. 

Below are our suggestions on how the subsidy bill can be reduced.

a) Fuel (Petrol, gas LPG electricity): (RM23.5 billion)

There should be full withdrawal of the fuel subsidy (except for a small targeted group), saving the nation at one swoop about RM23 billion

Fuel is a depleting resource and only when it is charged at market price will consumers as well as industries be careful about their use of fuel. When our oil and gas runs out we will be in serious trouble the sector contributes to more than half of the government’s revenue  It is estimated that by 2015 Malaysia will be a net importer of fuel.

With higher fuel prices, industries will seek ways to reduce energy costs (presently many are using gas in the factories because it is highly subsidized). Consumers will think twice about using their cars and may turn to public transport. Those with luxury cars will no longer be subsidized for their petrol consumption.  Since fare prices may rise, those in the lower income group should be given discounts when traveling on public transport.

Our stand on fuel subsidy is not new. We had in our  2006 Budget  memorandum to the Ministry of Finance asked that the subsidy for petrol be withdrawn.

b) Social (health, welfare. education, scholarships): (RM42.4 billion)

Scholarships: Overseas scholarships should given only  to post-graduate students, not undergraduates. Undergraduates can get their degrees from the local private and government universities. After all foreigners are coming to Malaysia to get their first degree.

Health: The hospital fees introduced in the 1970s should be increased. The RM1 outpatient fee can be increased to RM5 and that of the Consultant’s fee be increased form RM5 to RM10.  With an estimated 8 million  outpatients ( 7 million in 2003) , the government will be at least able to collect RM32 million  when the fee is increased by RM4

Third class ward fees should remain nominal, and  that of the second and first class should be increased.

c) Infrastructure (toll, rural air, rail) (RM4.7 billion)

Toll: Compensation paid to PLUS was RM813 million  compared to  RM171 million in 2005.  Between 2005 and 2009 the compensation to the North-South operator was RM3.06 billion.  This practice of compensating toll operators so that they do not to raise the toll charges has to stop..

Highway users are being ripped off by the toll operators.  A company that  proposed to takeover all the toll highways has claimed that it can give an immediate 20% discount on existing toll rates and no further  toll increases.

d) Food (cooking oil, sugar, flour, rice) and Agriculture (RM3.4 billion)

Sugar: Sugar subsidy which is expected to cost the government an about RM1 billion this year should be scrapped.  The RM1 billion does not reflect the true cost of subsidising the sugar price.  This is because sugar consumption can lead to many health problems. Chronic diseases like diabetes needs long term medication and is a drain on government healthcare.  Therefore making sugar expensive will also help to reduce the government’s subsidy on health care.

If the above suggestions are implemented, the government can save RM26 billion or more.

Removal or reduction of subsidies means that the public will have to pay higher prices for goods and services.  It is not fair to that they have to tighten their belts when the authorities continue  be wasting taxpayer’s money.  People cannot be expected to make sacrifices whilst the federal and stage government lose billions every year through their over-priced contracts. Government losses has been estimated to between RM14 billion and RM28 billion a year. These problems have been repeatedly highlighted in the Auditor-General reports and repeatedly ignored by the authorities.

We suggest that the government should show good faith by for example:-

  •  Consistently take action (in the court or otherwise) against those who have caused unreasonable loss of taxpayer’s money;
  •  Cut down inefficiency and over staffing of its departments;
  •  Plug the gaps in its purchasing system  so that the public get value for their money.
  •  Stop all unnecessary government procurement for example to carry out cosmetic renovations;
  •  Stop the allocations to Members of Parliament. They are not necessary since most of the projects can be carried out by the relevant federal or stage agencies.  These allocations are also subject to abuse.  The MPs role should be to oversee that the projects are carried out properly.
  •  All departments should be given a target to reduce their annual expenditure. The head of the departments which failed to meet the target should be hauled up to explain their failure to do so.
Though the public should support the government’s move to remove and reduce subsidies, government on its part must be seen to be seriously acting against corruption and wastage.
Press Release – 27 May 2010