Where are the targeted subsidies?

 

Continued talk of targeted subsidies is very disappointing because so far, there is still no mechanism to do it.

The political will is there, the technology is there, the economic urgency is also there, but after months of posturing, there will be a further three to six months’ delay as the government tests how e-wallets can be used to target specific products.

Is this evidence that there is actually no “targeted subsidies” plan yet or is there something else going on behind the scenes?

Targeting through particular products is the worst way to implement subsidies. First, you need a list of which products or brands will be subsidised and which will not. Producers need to have their products on this list and they will be prepared to pay for that. This is the first route to corruption.

Second, subsidised products will likely be sold in specific big name supermarkets or high street franchises to help regulate the schemes. Local mom-and-pop convenience stores, pasar malam stall holders, aunties at the roadside selling nasi lemak for your breakfast, and “10 sen doughnut hero” Idham Syafiq Darmilus will not be on this list. Big name outlets must be on this list and they will be prepared to pay for that. This is the second route to corruption.

Using specific e-wallets creates another list which finance companies must be on and this is the third route to corruption.

There are also huge transaction costs. Customers must register with a particular e-wallet provider, each transaction will come with a 0.5% to 3% fee to the stores and the costs may well be passed on to consumers, increasing prices yet again. Meantime, e-wallet companies will make a huge windfall.

The costs of designing, setting up and implementing the scheme as well as creating the technology and the regulatory and monitoring infrastructure will run into hundreds of millions perhaps billions of ringgit. Some lucky IT firm and their consultancy lobbyists will get their bonus.

There are economic and social costs as well. Consumers lose choices simply because they are poor. How does a bureaucrat know what people want to buy, anyway?

The subsidies make some products artificially cheaper and the price distortion damages businesses, especially micro, small and medium enterprises (MSMEs) that are not on the lists. All businesses face extra costs but the market distortions favour bigger suppliers and harm competition in the long run.

Regulatory costs are high. The PenjanaKerjaya subsidised training scheme scandal showed that “targeted assistance” is associated with “leakages” running to hundreds of millions of ringgit. Data security and profiteering from personal information, as we know from the MySejahtera scheme, will be a huge problem.

By contrast, addressing the cost of living problems, particularly for the lowest income groups using simple cash transfers that put money in the people’s pockets for them to spend as they choose is by far a better, more efficient and less corruptible solution.

The data, technology and policy mechanisms to achieve this are already in place through Bantuan Keluarga Malaysia, supplemented by the tax system.

All that is required is to redesign this process to provide regular monthly payments, consolidate all welfare payments into one and make sure the outcome provides a living income for everyone. It can be done in a matter of weeks.

The biggest benefit is that there are no middlemen, the cash goes directly from the finance ministry to the recipient’s bank account. So there are no opportunities for anyone to make money at the expense of the poor. Perhaps that’s why some quarters don’t want it? - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.