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Keeping subsidies: Caring or irresponsible?

“Whatever decision we make, it will not be without taking into consideration the peoples’ plight. This will be our top priority although the government has to heavily subsidise the price of the fuel.”

Prime Minister Datuk Seri Najib Razak, announcing that the government would consider the people’s plight before deciding on the price of RON 95 grade petrol, which would be left unchanged at RM1.90 per litre. Najib said the government was concerned over the rising cost of living on the people and wanted to ensure that inflation did not rise further.

The price of RON95 grade petrol was raised from RM1.80 to RM1.85 per litre in July 2010 and subsequently to RM1.90 in December 2010 in accordance with the government’s subsidy rationalisation programme.  (Source: People’s plight to be considered first before any Ron 95 price increase, New Straits Times, 25 May 2010)

“Saya cuma berharap, rakyat akan dapat menghargai langkah-langkah yang diambil oleh kerajaan kerana kerajaan melakukannya atas nama kepentingan rakyat walaupun dari perspektif ekonomi makro, mengekalkan subsidi yang begitu besar tidak akan mencerminkan pengurusan pentadbiran yang bagus.

“Mungkin bagi rakyat kebanyakan, adalah agak sukar untuk mereka menyedari akan hakikat ini tetapi bagi mereka yang memahami ekonomi angka, mereka akan faham pengorbanan besar yang telah dilakukan oleh kerajaan.”

Najib, hoping that the people would appreciate the government’s “big sacrifice” in maintaining the RON 95 petrol price at RM1.90, which he said was done for the sake of the people.

Najib said that the government had initially budgeted RM11 billion for the petrol and diesel subsidies for 2011 but with the rise of global oil prices, this amount had risen to RM20 billion. He added the government would do what was in their power to take steps to find creative ways to manage the increased amount in subsidies. (Source: Kerajaan pilih kehendak rakyat dengan kekalkan harga RON95 & diesel, mStar, 26 May 2011)

“This is not a question of popularity. Sure, we won’t be popular if the price of anything increases.

“But we are a responsible government. If we were to keep the prices low, letting it take its toll on the federal budget just to make the people happy, it’s the people who will suffer in the long-term and it wouldn’t be responsible of us.”

Deputy Prime Minister Tan Sri Muhyiddin Yassin defending the government’s decision to raise electricity tariffs by 7% starting from 1 June 2011.

Muhyiddin said due to rising global prices, the government had to face up to reality, despite any impact on its popularity in raising electricity prices. He said the effects would be more adverse in the long term if the government were to keep energy prices at an articially low level.  (Source: DPM: Government not in a popularity contest, Malaysiakini, 31 May 2011)

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One Response to “Keeping subsidies: Caring or irresponsible?”

  1. JW Tan says:

    The problem with broad subsidies like the one for RON95 and the one for electricity is that they are poorly targeted and therefore extremely inefficient.

    To me, subsidies ought to be given to poorer people who may not otherwise be able to afford essential goods. I can agree that RON95 petrol and electricity are essential goods. However, because consumption of both petrol and electricity rises with wealth (up to a point), the richer one is, the more one benefits from the subsidy!

    This argument applies less to a diesel subsidy, because wealthier people tend to have petrol cars instead of diesel cars. However how do you prevent companies from benefiting from the diesel subsidy as well?

    Both subsidies are irresponsible of course. If the government’s true purpose was to alleviate the burden on poorer people a system of cash transfers would be far more efficient. But of course it’s not – extending the subsidies to the middle class helps earn their votes.

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