KUALA LUMPUR – The removal of certain key subsidies may put a dent in the pockets of the majority of Malaysians, but is necessary to help the country’s economy prosper, according to an economist.
Sunway University economics professor Yeah Kim Leng argued that general subsidies granted by the government today are inefficient and could be better utilised on more productive uses with greater multiplier effects.
This includes building public infrastructure, spending on skills upgrading, ensuring technological improvement of industries, building affordable housing, and offering grants to smaller businesses.
More importantly, he said the rationalisation of subsidies will help improve Malaysia’s current precarious fiscal and debt positions.
But rather than removing subsidies at one go, Yeah suggested that this be done on a gradual basis to reduce its impact on consumers, and to offer targeted subsidies to the poor and underprivileged.
“We need to have complementary strategies to help the lower income household and small enterprises to cope with the removal,” he told The Vibes.
For the B40 group, for instance, this can be in the form of a coupon system with a monthly quota to purchase food and other essential goods like rice and sugar.
“This will still help us reduce our fiscal burden, and the savings can then be channelled into productive investments.”
Yeah was commenting on an article by The Vibes that the Malaysia Productivity Corporation (MPC) is pushing the government to remove subsidies on key items like RON95 fuel, flour, sugar and rice.
The implementation will depend on approval from Prime Minister Datuk Seri Ismail Sabri Yaakob and his cabinet, although it is understood most are not in favour of the proposal.
The Malaysia Social Protection Council, chaired by the prime minister and comprising 15 ministries and other key post-holders, is set to meet with the MPC to deliberate on the matter soon.
Yeah acknowledged that subsidy rationalisation will lead to inflation and reduced purchasing power, the latter of which will particularly concern middle and higher income groups who may not be included in any government-targeted aid.
However, the professor said this is likely to be the only negative effects of the planned rationalisation, describing it as “part of a necessary pain to enable a more efficient economy”.
Removing subsidies now could be detrimental: Fomca president
According to MPC director-general Datuk Abdul Latif Abu Seman, the need to reduce dependency on non-critical subsidies is vital in ensuring accountability among industry players towards improving their productivity.
He recently told The Vibes that this has been clearly outlined in the Malaysia Productivity Blueprint.
At the moment, discussions with stakeholders are still actively ongoing to determine if the issuance of subsidies is affecting the country’s competitiveness.”
Federation of Malaysian Consumer Association president Datuk Marimuthu Nadason, however, warned that removing subsidies at such a critical juncture after the Covid-19 health crisis could be detrimental to the majority of Malaysians.
He also does not believe that the alleged excuse given by MPC – that the funds could instead be utilised elsewhere – is accurate.
“If they remove it anytime soon, it just goes on to show that the government has failed to take care of the welfare of the people. The rakyat won’t be able to cope.
“All these years, the government has been (talking) about ensuring that the welfare of the people is protected.
“If you are going to remove the subsidies now, then you can try your luck.” – The Vibes, March 28, 2022
