Saturday, 22 November 2014

Fuel Subsidy Cut

This is one of the few issues that I disagree with Pakatan Rakyat. I personally think that DIRECT fuel subsidy is not good for the economy in the long run.

The direct fuel subsidy policy distorts prices of so many products and services. Rakyat and the Government may disillutionally think that transport-related costs are cheap when in actual fact, they are not.

First and foremost, we need to agree that someone must pay for the subsidised portion of fuel price. Since the Government intervened the fuel price by lowering it through subsidy, rakyat might think that they pay less on fuels. Actually, the Government pays for it using a portion of its revenue (of course bulk of it from taxes) and deprives rakyat of other benefits such as better education, healthcare and public transport.

In addition, subsidised fuel has moral hazzard to consumers as it might not incentivise them enough to save on fuels. Hence, increase the subsidy to be paid using "duit rakyat". Also, it gives wrong impression to some people that the cost of owning private transport, especially cars is cheap and affordable. 

Nevertheless, the above does not mean I support some of Barisan Nasional policies pertaining to the abolishment of fuel subsidy.

Firstly, I do not think BRIM a viable policy to counter subsidy cut. Although it directly goes to the targeted groups, BRIM handouts do not have impactful spillover effects.

Instead, all savings from subsidy cut should go to public transport, such as providing free public transport to school children, senior citizen and OKUs as well as strengthening the efficiency and effectiveness of public transport. Enhancing effectiveness can be done through widening the coverage of public transport, at least by bus and strengthening the efficiency can be done through increasing the frequency of service and introduction of dedicated line for public buses and taxis.

I also disagree the continuation of subsidising the IPPs. If rakyat have pay full price, why should we allow IPPs make lots of profits, due mainly to subsidy and one-sided purchase agreement.

The same goes to natural gas subsidy which was reported that about 80% of the total subsidy went to businesses and corporations.

In summary, I agree for the prices of fuel and natural gas to be determined by market. Nevertheless, the savings from the subsidy cut MUST go to public transport, at least to provide for the following two objectives:

  1. Free public transport for children, senior citizens and OKUs; and
  2. Strengthen the effectiveness and efficiency of public transport nationwide. 

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