As subsidies balloon, BN eyes cuts but foes expect snap polls

By Melissa Chi
The Malaysian Insider
May 17, 2011

KUALA LUMPUR, May 17 — With the national subsidy bill expected to top RM20 billion this year, opposition leaders are bracing for snap polls before the ruling Barisan Nasional (BN) makes inevitable cuts that could prove unpopular among voters.

Several senior BN leaders had signalled the inevitability of price hikes yesterday, hours before the Najib administration announced it will cut the diesel super subsidy for nine categories of commercial vehicles from June 1.

At the same time, the government kept its January promise and abolished toll charges in the East-West Link between Cheras and Petaling Jaya, a key highway in the Klang Valley from midnight this morning.

Rural and Regional Development Minister Datuk Seri Mohd Shafie Apdal told The Malaysian Insider that it is important for the government to balance between cutting the country’s deficit and, at the same time, not dumping the burden on the citizens.

“How can the nation shoulder the burden? We are managing quite well despite the economic turmoil,” he said.

As for subsidy cuts, Shafie said it will depend on the advisory council under the Price Control and Anti-Profiteering Act 2010 to decide.

The Umno vice-president emphasised that this is a very complex and delicate issue.

“It is not as simple as it entails a lot of complexity and we have to manage it properly. So every one of us, irrespective of the government, has to play a part to ensure the bigger picture will benefit us, a nation as a whole,” he said, adding BN was doing its best as no government wants to lose power, or bring the country into a deeper deficit.

“When you micromanage the economy, for example through subsidies, it will benefit the public to a certain extent but it also benefits smugglers. It’s not a question of winning the elections but the nation has to pay for it in the future, so we’re being a responsible government,” Shafie said.

Deputy Prime Minister Tan Sri Muhyiddin Yassin signalled the inevitability of price hikes when he announced yesterday the subsidy burden was expected to double this year from RM10.32 billion to RM20.58 billion, with RM18 billion for petroleum-related sectors.

The Umno deputy president said the country could no longer maintain the current subsidies, adding the government was trying to reduce subsidy costs like the increase in price of sugar and that it was doing it in stages.

Pua predicts the prime minister will call for earlier polls as global commodity prices go up.DAP publicity chief Tony Pua told The Malaysian Insider that he predicts the prime minister will call for earlier polls as global commodity prices go up.

“July, if it’s a surprise one, but a possible one will be in November.

“They are handling it terribly. I think there are a lot of place where expenditures can be cut, for example, restructuring the IPP (independent power producer) contracts. Out of the RM20 billion subsidy bill, the deputy prime minister should clarify how much are for the IPPs? How much for sugar?” he said.

“I think they should handle the biggest impact to deficit — IPP, the need to curb smuggling activities — which takes up a large portion of the subsidy.

“The problem has been identified by Pemandu but no action has been taken. The government only cuts those subsidies that affect the man on the street,” Pua said.

Minister of Domestic Trade, Co-operatives and Consumerism Datuk Seri Ismail Sabri Yaakob said yesterday that a price increase for RON 95 was possible, and that the people should be prepared to face it.

PAS Shah Alam MP Khalid Samad echoed Pua’s prediction for early polls in July, but said subsidy cuts were not the only factor.

“They don’t have any reason to wait. I think they have concluded that the support of the non-Malays is already a gone case as far as they are concerned, especially with the Chinese; they can only maintain the Malay support for this period of time, the longer they wait…. they risk losing their support,” he said.

He expects the economy to get worse than better and there is a need for more subsidy cuts.

“No way can they badmouth Anwar in what they’ve been doing, nothing else they can act as far as PAS is concerned, unless the final tally comes back if you have the elections now, you’re going to lose,” he said, adding that the “heartbeat of the nation” is no longer with the prime minister.

Khalid expects the economy to get worse than better.Khalid acknowledged that Prime MInister Datuk Seri Najib Razak was trying to address the problem but didn’t think “he has any idea on how to overcome it and he’s not doing what it takes to address it”.

“The whole party survives on the access of the administration and if they don’t have the money, how to oil their political machinery?” he said.

He added that the ruling government needs to be frugal and identify what to do to help the common people, rather than big businesses which are closely aligned with it, as it needed their support.

“I don’t see the economy changing for the better; I believe they will be even more hard-pressed to face the voters at the end of the year or next year but because there are other factors including commodity prices — oil and gas prices and all that — maybe there will be political changes.

“They can’t carry on winning the elections just by having the culture of fear among the Malays, demonising Anwar. There’s only so much they can do if they are forced to proceed or drag the elections next year, they might be forced to do some real economic policy changes and sacrifices,” he said.

Deputy Finance Minister Datuk Dr Donald Lim said even with the subsidy cuts the price of commodities, especially sugar and fuel, are among the lowest in the region.

He said the rise in sugar prices may benefit the people as it may slow down the rate of diabetic cases in the country as well as cut down smuggling of sugar.

As for fuel prices, he said it was beyond the government’s control and that the people should try to cut down on usage.

“I think the rakyat will know that this is beyond the Barisan Nasional government’s control. The government will try our best to maintain the situation. We have to weigh the situation. We will monitor the price of oil in the world.

“Either the government or the rakyat will suffer. There has to be a compromise. I believe the subsidy cuts were a necessary announcement. The important thing is oil price increase affects all governments in the world, especially the ruling governments, it is something that we have to face, the reality,” he said.

Malaysia’s low purchasing power, coupled with rising prices, is putting pressure on the Najib administration to pump more public funds into existing subsidies.

Lim said the prices of sugar and fuel are among the lowest in the region.The move is seen as necessary to avoid public unrest over the escalating cost of living, as well as to counter Pakatan Rakyat’s (PR) attacks on the government’s previous plans of phasing out subsidies.

Najib said on April 1 that the recent surge in the cost of living may force the government to slow subsidy cuts, and that while the government was committed to reducing the nation’s deficit, “we don’t want rising prices in Malaysia to be a major burden for the people.”

He has already announced the government’s willingness to fork out RM4 billion more in addition to the RM10 billion allocated for subsidies this year.

Analysts and politicians believe that problems affecting the economy — distorted and inefficient markets, lack of competition, low wages and a weak ringgit — will be the biggest problem for the BN administration as the country heads into the next general election, speculated to be held by year end.

But Muhyiddin’s remarks suggested the government was now preparing the public for more cuts.

“We cannot guarantee there will be no increase in the prices of goods. We cannot control the prices but where the government can intervene to decrease public burden then we will,” he said.

The 2010 Prices and Wages report by Swiss bank UBS AG shows that residents in KL have only 33.8 per cent the purchasing power of their counterparts in New York, 42 per cent that of London, 33.7 per cent that of Sydney, 32.6 per cent that of Los Angeles and 31.6 per cent that of Zurich.

A check on salaries and prices in selected developed country cities by The Malaysian Insider showed that despite being touted as one of the world’s least expensive cities, KL residents pay as much or even more for chicken, broadband, cars and mobile phones as a percentage of their income.

Despite government assurances that inflation is under control, Malaysians are becoming increasingly restive over the cost of goods in relation to wages, especially those who are able to compare the corresponding price-to-wage ratios in developed economies.

According to a Bloomberg report last month, surging fuel prices and unhappiness over the implementation of race-based policies contributed to the ruling BN coalition losing control of five states to Pakatan Rakyat in Election 2008, where it also ceded a record 82 out of 222 seats in Parliament.

Najib completed his second year as leader on April 3 after inheriting a contracting economy and a ruling coalition with the smallest majority in Parliament since independence in 1957.

The Bloomberg report also wrote that voters and investors are waiting for the premier to deliver on pledges to transform the country into a developed nation by 2020, narrow the budget gap and ensure preferential economic policies benefiting the Malay majority are extended to the poor of other races.