Gov't: What choice is there but to raise prices?

After years of running at a deficit, the government has painted itself into a corner and has no choice but to cut subsidies and raise prices.

"What choice do we have? Business as usual, deficit and inefficiency?” International Trade and Industry Minister Mustapa Mohamed  asked today.

"If we pursue a policy of doing nothing, our deficit will remain at 4.5 percent and put pressure on the current account. Do nothing and pressures on the currency are a real possibility."

Mustapa was speaking at a forum in Putrajaya to commemorate the third anniversary of the Economic Transformation Programme.

He said that, while it is a "tough situation" for all, the government must be a "responsible government which looks at the future".

"We are doing it (cutting subsidies) gradually over several months and not in one fell swoop, and we need (the people’s) buy in.

"They must understand if we do nothing the country will face deep and serious problems in the future.”

Supporting him, Abdul Wahid Omar(left), a Minister in the Prime Minister's Department, said that with these measures the international rating bodies will view Malaysia more positively.

As a result, they may even raise Malaysia's credit rating, he said.

"When this happens, the cost of growth in the country goes down (and) investments go up, resulting in more job opportunities and higher income for the people," he said.

He reiterated that, in doing so, the government has been cushioning the blow for the working class by expanding the Bantuan Rakyat 1Malaysia scheme, reducing taxes and shielding those whose electricity bills do not exceeed RM77 monthly from the upcoming tariff hike.

The World Bank, in a report last week, had warned that Malaysian households are in for a tough time next year, as prices of consumer goods are expected to rise due to subsidy cuts for fuel.

This, in turn, has increased the cost of food and electricity.

Pakatan Rakyat has accused the government of trying to push through a subsidy rollback plan before April 2015, to avoid double-whammy inflation when the goods and services tax is imposed.

The subsidy rollback plan was initially supposed to be staggered over five years and to have started in 2009.

However, it was kept on ice until this year due to political sentiments in the lead up to the 13th general election.