The hike mentality

by Dr Hsu

According to the Star, another government linked company is raising its tariff. Airport tax is likely to be raised from RM 51 to RM65. an increase in 27%.

Those behind the hike may be thinking that for international travellers who are able to fork out thousands to travel, an increase of RM 14 is negligible.

BUt coming at a time when cost of livings and inflation rate are going up, this hike must be scrutinised carefully.

Many top leaders have asked the retailers to try to absorb cost and not to raise prices when they increase the petrol and electricity tariff. BUt apparently the same rule does not apply to the government linked companies.

Since the past year, we have an increase of postage from 30 cents to 60 cents per letter, an 100% increase. We have seen an increase in petrol and a 7% increase in electricity charges. We have seen an increase in Astro charges. Medicine costs have gone up many times, partly thanks to government efforts in limiting import of certain raw materials , thus creating an artificial shortage of colds and cough medicine (which contain an ingredient called pseudoephedrine).

Those who are behind the hike may say that it is only an increase of ‘cents and dollars’. But the cumulative effects is that the price of all other goods have gone up.

Besides, all these increases from government linked agencies, or as a result of more red tapes and bureaucratic hurdles, have resulted in a “hike” mentality.

What is easier than to just hike the price of goods and services to improve the bottom line? No need to talk about being more efficient. No need to talk about increase in productivity. For the management of government linked companies, what is easier than just to just raise the tariff and rake in more profits? After all, many of them are monopolies, like TNB and MAHB.

It is the easiest way to increasing profits and as the results of the increase, there would be justifications to have higher director and management fees. But this hike mentality would have hampered innovation and better productivity. Little wonder why we are still in the middle income trap, since we always resort to the easiest way out.

Coming back to the proposed airport tax hike, let us look at MAHB’s financialhighlights.

The following is the 2nd quarter 2011 result:

(click to enlarge)

It is acknowledged that while revenue grew 8.4%, PBT(pre tax profit) grew 65.9%. There is a net earning of 81.8million in 2nd quarter (2011) alone.

Look at the first half result of 2011 below:

(click to enlarge)

In the first 6 months of this year, PBT was 267.1 million while the net earning is 170.1 million. So MAHB is not doing that badly, as a monopoly.

While it is true that many of the travellers are filthy rich people, who can afford to spend millions on a single diamond or spend thousands on a single meal, there are many who are not so rich.

This latter group has to travel either because of business reasons or sometimes family or personal matters. There are also those who are retirees and who have slogged for their whole lives and at the end of their twilight, they wanted to see the world– these groups are pensioners who are definitely not rich. To raise airport tax when MAHB is earning good profits is not reasonable at this time when inflation rate is already high, even though the increase maybe small.

For businessmen who travel a lot, the cumulative increase on their companies would add costs to doing business, and thus they would have to hike the price of their products.

Small increase cumulatively become big, and cumulatively, people would feel the pinch.

I think government agencies must do away with this hike mentality, especially at this moment . It would be wise for them to review other ways to trim operation cost. Some of the directors are earning way too high, some of the managers are earning way too high too. Some of the goods and services contracted out are way too high. If all these can be trimmed first, and productivity be increased, then there should be an improvement in the bottom line.

CEOs of these government linked companies must realise they have social reponsibilities too towards the rakyat, not just to their shareholders.

I met a high official from the little red dot down south some time ago. He told me that in their country, if there are 10 vacancies in a department, be assured that the head of department would only fill up 7 to 8 of these vacancies, and let these 7-8 persons work a workload of ten people. That is how their productivity remain high. That is how their country is now first world and we are still in the middle income trap.

I hope the power that be will seriously give a directives to all these companies not to have this “hike mentality”. At least any increases should be postponed for a few years, unless the company is losing lots of money, in which case a total revamp of the management is in order.

Do not just tell the small retailers not to raise the prices of their goods. We must not have like what the Chinese proverb says: ” allowing top government officials to light big fires, but restrain the ordinary people from even lighting their candles.” That is a sure way of losing support!