Subsidies are NOT sweet deals

By R. Nadeswaran, theSun

No one will object to cuts in subsidies if they know that the money will be used rightfully on projects that benefit the nation and the people as a whole. It was even suggested that the money "saved" from such an exercise should be put into a separate account and the government be transparent and accountable in the use of the "savings". If five sen is saved from sugar, let the public know how it is spent.

PAYING more for a product or a service is inevitable and painful as one has to dig deeper into his pocket. Increasing taxes or cutting subsidies are never popular measures. Before such drastic steps are taken, the pros and cons are weighed. In our case, the government has been subsidising the cost of many daily requirements like fuel, sugar and flour. Taking away subsidies will mean that while the middle- and upper-income group may be able to absorb the increase, the lower-income bracket, especially the hardcore poor, will bear the brunt.

For too long, we have been used to and have adapted ourselves to the "subsidy mentality". For too long, the government has adopted the "rob Peter to pay Paul" theory. For too long, we have lived in comfort zones knowing well that the government would intervene to afford us "protection" when prices go up on the global commodity markets. For too long, we have woken up in the belief that the government would do everything (including the use of the law) to prevent manufacturers to pass on increased costs to the consumer. For too long, we chose not to face reality, always in the false belief that we don’t have to tighten our belts or make allocations for increased costs.

Inevitably, reality had to come crashing onto our skulls so that we would awaken and be shocked into a re-think and a re-shape of the grey matter in our heads. It came in the form of facts and figures from a presentation by the minister in the Prime Minister’s Department, Datuk Seri Idris Jala. He fearlessly analysed and delivered the problems of ballooning deficit and increasing spending. While many were thanking him for the rude awakening from a Rip Van Winkle nap and putting the facts and figures on the table, there were many who labelled him otherwise.

Long before Idris’s presentation, we sat with Domestic Trade, Consumer Affairs and Co-operatives Minister Datuk Seri Ismail Sabri Yaakob and his officers in a long and absorbing discussion on removal of subsidies. Terence Fernandez and I were two of the many who were invited in February to share their views, with already a "revised" price of petrol awaiting implementation.

The point that was made was: No one will object to cuts in subsidies if they know that the money will be used rightfully on projects that benefit the nation and the people as a whole. It was even suggested that the money "saved" from such an exercise should be put into a separate account and the government be transparent and accountable in the use of the "savings". If five sen is saved from sugar, let the public know how it is spent.

Why should the owner of a Perodua Kancil (that’s what he can afford) be subsiding the owner of a Hummer who overtakes him on the highway? Why should the tobacco farmer in Pasir Mas who cycles to his farm subsidise the city folk who even drive their BMWs from their homes to the sundry shop? Why should the man tending his fish pond in Malim Nawar subsidise the owner of a stretch limo who is driven to a six-star restaurant for his dinner?

These were some of the questions posed in that discussion, but when it came to the hardcore poor, we couldn’t come up with an equitable formula. That’s because our system lacks integrity and the lists of names provided becomes bloated and inflated by those responsible for drawing them. In one case, the list for one village increased from about 50 to over 200 because someone had added on names of relatives and friends after hearing of an impending "welfare assistance". Unless an intricate household-to-household survey is done, we are not going to determine the exact number of people who live below the poverty line.

So, the bell has rung for the first round with a marginal cut in the price of sugar. But why should we subsidise commercial organisations which use sugar as an ingredient and make millions for their owners and shareholders? More importantly, why is the government restricting the imports of sugar to a handful of companies? Why should one need an approved permit for sugar? Shouldn’t manufacturers be allowed to source for sugar from the open market and import them at a cheaper cost instead of relying on "subsidised sugar"?

Therein lies the problem. Together with the cut in subsidies, we must create a free market for people to trade in goods without any form of restriction which is primarily aimed at protecting certain categories of business people. When restrictions are lifted, there will be competition, which in turn would bring about lower prices which ought to be passed on to the consumer.

Unfortunately in our system, benefits to the consumer never seem to be the priority in the larger scheme of things.