Monday, March 01, 2010

Petrol subsidy scheme retained, painful option ahead

After much anxiety over the proposed tiered system for petrol subsidy, recent developments show that it was much ado about nothing.

Reports in several newspapers last week revealed that, while an official announcement has yet to be made, the proposed system will be scrapped as implementation would have been too complicated.

petrol price hike panic 010705 petronas stationThe proposal would have included controls over engine capacity and amount of petrol used per month.

More controversial however, was the fact that only registered car owners could qualify for the subsidy, leaving those who share cars crying foul.

Furthermore, petrol suppliers would have to install MyKad and thumbprint readers to ensure that the subsidy is only enjoyed by those who qualify for it.

Ratings Agency Malaysia chief economist Yeah Kim Leng said it is a relief that the proposal has been dropped, apparently due to resistance from officers in the Finance Ministry.

"The system would have been administratively cumbersome and leave much room for leakages and abuse," he said when contacted.

"The process of gathering feedback and early indication of the feasibility of a policy needs to be better organised. There needs to be a clearer indication to the public."

Instikpg melayu ampang mosque protes petrol price hike 200608 02tute of Democracy and Economic Affairs chief executive Wan Saiful Wan Jan agreed that a better feedback mechanism must be used.

He also said the scrapping of the tiered system is to be applauded because it shows that the government has its ears to the ground.

"I don't see it as policy flip-flopping. Instead it shows the government is responsive to what the people want. If the government does it officially and openly, the public will know that the government listens to them," he said.

This feedback loop between the government and the people appears to be missing between ministries.

Raising many eyebrows, Consumerism, Cooperatives and Domestic Trade Minister Sabri Ismail Yaakob has thus far claimed ignorance about the system, saying that it is in the hands of the Finance Ministry.

This is despite the fact that he would have had to eventually take the fall if the system went bust, thereby supporting arguments that the government is inefficient and 'bloated'.

"We have too many ministries! It has even come to the stage that we have two classes of ministries, where the second class implementing ministries are only instructed by the superior planning ministries," Sabri lamented when contacted.

Petrol prices going up

These issues aside, the rejection of the tiered system would mean that the only way to remove petrol subsidy is to do what both experts think is the better, but more painful option.

"There is a big lesson here that we must learn - that it is better not to start any government subsidy programme at all because when it needs to be stopped, it is the rakyat who will suffer," Wan Saiful said.

As with apetrol price hike protest 2 100306 petronas flag burnedny addiction, however, the pain of removing the petrol subsidy can be managed if the people are weaned off it slowly, a route the government plans to take by increasing prices gradually.

At the same time, increasing petrol prices alone without looking at other subsidies or potential safeguards, both experts cautioned, would be a destructive move.

"Any change in the subsidy system must be done in a holistic manner. Revamp the entire system and look at those who fall below the poverty line with the new system, and address the needs of these people," Yeah said.

The timing of the petrol price hike is also a cause for anxiety, especially when one considers speculation that there will be an increase in the electricity tariff and mortgage rate, and that the Goods and Services Tax is due to be implemented next year.

Yeah said that, as far as inflation is concerned, the government is damned if it raises petrol prices now, and damned if it does not.

"(Implementing all four policies at the same time will create cost pressures, the build-up will be tremendous and there will be a strong inflationary push, so perhaps this should be staggered," he said.

But staggering implementation will only drive inflationary expectations, which will be used by commonly-found uncompetitive industries to drive prices even higher, he noted.

This could be addressed by taking a long run supply-side approach in increasing competition, but in the short run, the onus will be on consumers to make wise decisions.

public transportation 260706 star lrt"Price is the best signal for consumers to know which one of these goods is scarce and to thus adopt new spending patterns. If prices are high, don't consume as much," he advised.

In any case, he added, the public should not worry too much because "fuel is not essential goods". Those who cannot afford to own vehicles should opt for cheaper forms of transport.

On the upside, greater demand for public transport could very well solve the chicken-egg dilemma in the transportation sector.

With more money in the coffers from reduced petrol subsidy and with more people demanding a better deal, the government will have no choice but to create an efficient public transportation network.

This would be a win-win solution for all.

courtesy of Malaysiakini

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