Thursday, June 3, 2010

RM74 Bil Subsidy Cut?

By Syed Akbar Ali

It is good if the Government can cut subsidies. Subsidies create anomalies in the economy and also prevent the economy from achieving it full potential.

The Government will be having a 'lab session' at Hall 4 and 5 of the Kuala Lumpur Convention Center from 9am to 2pm this Thursday to get public feedback on removing the subsidies.

My simple suggestion to remove subsidies is this : remove subsidies that go towards the least productive activities first. And remove subsidies that go towards the most productive subsidies last.

So fuel subsidies should be cut last (but they must be cut). Any kind of subsidies for any kind of 'religious' activities should be cut first (I am sure there must be some inside the RM74 Billion).

Having said that, if we cut subsidies, then surely the cost of things are going to go up. There will be inflation. It will be a one time thing. Never mind. Let it go up. Jangan takut. After a while, everything will settle down to a new balance again. Smith called it the 'invisible hand'. Today we can hardly recall the 70 sen per litre jump in petrol prices. Does anyone recall that? But that was just one item - fuel prices.

But when subsidies are cut all across the Board it is going to cost substantial inflation. The fixed income earners (Civil Servants and Salary earners and pensioners) will be hard hit. There are ways to do it.

If we remove subsidies, which will cause the cost of living to go up, then we must also remove other barriers and impediments so that the cost of living can go down.

The Government can save up to RM74 Billion if subsidies are cut. What is the Government going to do with all that money? I will talk about that shortly.

First of all, can we cut Income Taxes. Can we take personal Income Tax down to say 15%? Or 18%? The highest personal Income Tax bracket now is 25%. Similarly can we take down Corporate Tax down to say 20%? Its at 28% now. This is a fair request. If we cut or remove subsidies, then please cut Income and Corporate taxes.

Secondly can we please get rid of the Approved Permit highway robbery. The Approved Permits are a total fraud on the population. Can someone go to the Lab on Thursday and ask this simple question : How are the Approved Permits dished out?

Ok, lets say the APs are reserved for bumiputras only (1Malaysia notwithstanding). But which bumiputeras get the APs? How are the APs "diagihkan"? We have APs for cars, machinery, equipment, medicines, alcohol (?) and even cigars. No AP, tak boleh import. The APs add to the cost of the product WITH NO ADDED VALUE by the AP holder.

So if we are going to remove the subsidies, please remove the APs. In Malaysia, a brand new graduate Civil Servant is paid RM2,500 a month. (I think this is overpayment. If you ask me, RM1800 should be enough. I am basing this on the quality of the Civil Service now. After 24 months of service (all KPIs achieved) then you can raise their salary to RM2,500.)

But even at RM2500 a month, even a Perodua Myvi requires monthly installments of RM650 a month. That is 25% of the monthly salary. Petrol may cost another RM400 a month. That is RM1050 on fuel alone per month. This is because cars are so expensive in Malaysia. Why? Because we are protecting our local car industry. That is where the APs come in.

So remove the car APs, let Proton, Perodua and Naza find their own way in the world and reduce the prices of cars. So that a graduate Civil Servant who earns RM2500 need ony pay 10% - 15% of his monthly salary for car payments. This can be done overnite. I believe in the rich countries, this is the right portion of monthly wages that go towards paying for a car.

Then if you remove the RM74 billion subsidies, the public can withstand the pressure. Otherwise, potong subsidy but car prices are still the highest in the world because a few Dato AP holders benefit from the APs. Yang jadi miskin orang Melayu juga. Orang lain pun miskin. Yang jadi kaya berapa kerat Dato saja. What kind of economic management is that?

Also remove APs for the import of medicines, foods, machineries and everything else.

The Government wants to implement the GST. Among the reasons is because "other countries also have it". What a lame excuse. OK using the same logic, other countries also dont have APs. So why do we have APs? Remove the APs. Forget about the GST. It is going to screw up the system. McKinsey and Boston Consulting dont know what they are saying.

Then get rid of the monopolies. Many Malaysians (my dear Malaysians - I am referring to you lah, please wake up) don't know that over the years many monopolies and oligopolies have crept into the economy. Some of them can be justified at the time they were created. But after a certain grace period, they should not be protected anymore. The market should be opened for more competition.

One example is the LAW that was passed which prevents people from owning satellite dishes larger than 36 inches. This LAW was passed to protect Astro which was spending billions of Ringgit at that time to establish a satellite TV network in Malaysia. OK they have had their grace period, its about 15 years now. Its time to repeal that LAW and allow people to own satellite dishes larger than 36 inches and watch their own satellite stations.

The argument about too much pornography coming in through satellite TV has now become a 'bodoh macam pintu' (dumb as a door knob) statement. Porno is on the Net not from satellite TV.

Also Net TV is going to kill off satellite TV. Its cheaper and easier. You can broadband it everywhere. Thats why we need the High Speed Broadband network up in a hurry all over the country and let there be as many providers as the market can bear. It will eventually lower the cost of watching HDTV broadcast, the already here next generation in TV. Eventually satellite TV will have to be cheaper too.

So can we please remove all these monopolies that we have created. There is a monopoly granted to a company to check and certify all weighing machines used by businesses in this country. This is a huge monopoly. On what basis was this monopoly granted to this private company? They can bully the consumer easily. There is still much corruption in this weighing machine certifying industry. A Government regulatory authority was privatised.

The same goes for Puspakom. Also the other one that repairs and maintains Government vehicles Spanco or something. Now another group wants a monopoly over all the toll roads in the country. Why do we create these monopolies? All these add up to our cost of living. So if the Government is now also going to reduce the RM74 Billion subsidies, that is fine and well.

But also remove all these monopolies and APs that are cluttering up the system.

The Government is also scaring me with even newer and weirder proposals. Why should a Qatar Investment Agency be even considered to redevelop prime land at the Sungei Besi Airbase? What is the basis to give it to a foreign company? Was there an Open Bid? How can we give our prime land to a Qatar company without even an Open Bid? Are they better than Malaysian companies who may be asked to put in Open Bids? If so, how come? Which part of the Federal Constitution says that companies from Qatar can gain access to our prime land without even putting in an Open Bid.

The Government should also not pay bloated prices for Government projects to help "friends". That is a grave wrong. It really adds to our cost of living.

Lastly "minimum wage" is also one of the biggest subsidies, usually implemented by people who do not understand how much damage it does in the long run.

There are many forms of minimum wages. The 'dole' or social welfare payments in Europe are also a form of minimum wages. In many European countries if you are unemployed, you are guaranteed some sort of social welfare payments. This is just another form of minimum wages. Now the financial crisis sweeping across a Europe is showing up the final results of all this 'subsidy mentality'. The economy has become less competitive because of the dole system.

In Greece, the hardest hit country, private sector workers are lamenting why they have to work up to 50 hours a week to pay taxes that support Civil Servants who don't do much work. The same applies here. The private sector too works hard and pays taxes which are used to pay the salaries of the Civil Servants - whom we all know for a certainty do not work as hard as the private sector.

Lets get rid of the subsidies. Lets also get rid of the APs, the monopolies, the weird Government announcements, the cronyism and such which only adds to our cost of living.

1 comment:

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