Dr Lim Teck Ghee
2nd October 2012
In their joint statement recently released on 28 September, IDEAS (Institute for Democracy and Economic Affairs) and not-for-profit research institute REFSA (Research for Social Advancement) drew attention to the “shocking federal government subsidy bill for 2012” which according to them is now expected to hit RM42 billion, a massive RM9 billion or 27% above the RM33 billion originally forecast for the year.
While it is true that subsidies have quadrupled in the past five years, and some of it is wasteful and not efficiently targeted at the most needy or priority sectors, the REFSA-IDEAS contention of the debilitating effects of subsidies on our economic health needs to be challenged.
Yes, blanket subsidies for cheap petrol and sugar do result in a degree of excessive and wasteful consumption. However the extent is debatable, and even if considerable, is not a sufficiently compelling reason for their immediate removal.
The other argument that such subsidies “discourage investments in improving productivity and efficiency” and “benefit upper class Malaysians who consume much more than their poorer cousins” also needs dissecting. There is little empirical research to back up what has become an increasingly popular line of argument. For it to be useful or credible, echoing of popular opinion is not sufficient. The REFSA and IDEAS team need to substantiate their position with hard data and rigorous analysis on these so-called negative effects.
Government is our biggest subsidy burden
It is necessary to remind the REFSA-IDEAS team that subsidies have an important role to play in providing a safety net for vulnerable groups. They help bring down the cost of living as well as enable access to health, education, transport and other necessities.
They are a necessary burden in a highly skewed capitalist economy such as Malaysia’s where the lower classes of labour do not get the fair remuneration that they are entitled to or deserve. We already have one of the highest levels of income inequality in the region. In pushing for a free market system without due attention to the structural defects of our political economy, proponents of a neo-liberal ideology run the risk of throwing out the baby with the bathwater.
In their final argument REFSA-IDEAS state that “restructuring subsidies is the low-hanging fruit that will help restore fiscal balance and improve our dwindling national competitiveness.” In fact, subsidies and price controls to help poor households comprise a small proportion of the total government operating budget. The largest part of the budget is spent on salaries (to civil servants); pensions to retired civil servants and supplies and services – the last bloated by “excessive and wasteful” procurement and projects whose costs are inflated by rent-seeking and patronage charges.
There is a credible counter argument that the ballooning deficit and growing mountain of debt in the country is mainly due to government spending on itself, rather than spending on the rest of the country or on the poor. The REFSA and IDEAS team would be doing the country a greater service if they shift their focus onto this lower hanging fruit, especially the allocations provided to the political Ministries which have been overrun with staff whose main function seems to be to look after the political and economic interests of the ruling party and its supporters rather than provide services to the public.
Its true getting rid of the govt waste/corruption is bigger than the subsidies but seriously the subsidies are a corruption too – of the masses that is.
Our petrol, cooking oil and even sugar is cheaper than in Indonesia – it used to be the other way round for the longest time..
No one is arguing that govt waste/corruption is the first priority but that these subsidies should not be removed and not far away its just not sound..
”…….the political Ministries which have been overrun with staff whose main function seems to be to look after the political and economic interests of the ruling party and its supporters rather than provide services to the public…”
How true. We all know this to be true.
Year in and year out the staff are rewarded with bonuses, bonuses, bonuses under the budget, Raya, year-end and what have you. Do they really deserve all the bonuses? Some commentators suggest the payments are ‘bribes’ or near bribes but the civil servants are definitely kept happy, all 1.4 million of them (and their families).
Do we have a bloated civil service?
Have the Pakatan state governments analysed whether their respective state civil service are bloated, above what is in fact needed? If so, what steps have been taken to trim down and control numbers, improve efficiency and reduce costs? Let them be shining examples of good government.
When 20% (20% !!!) of a state’s population turn up for a wedding feast (kenduri) of a State leader’s family member, you stand amazed and wonder what is happening.
“…The REFSA and IDEAS team would be doing the country a greater service if they shift their focus onto this lower hanging fruit, especially the allocations provided to the political Ministries which have been overrun with staff whose main function seems to be to look after the political and economic interests of the ruling party and its supporters rather than provide services to the public. ….”
Absolutely. The likes of BTN and their related agencies should be terminated immediately. They serve no useful purpose and instead are a detriment to nation building.
However, there is merit to the argument that subsidies should be reduced or removed. There has been enough economic arguments against continuing subsidies but having said this, the reduction or removal should be gradual and in tandem with a balancing of the restructuring of the economy to achieve a more balanced income equality.
But there is no disagreement that Budget 13 or any budget thereafter should be looking at achieving this balance and strive for better equality of incomes with longer term strategies rather than short term bribes to win votes.