Unravelling the T15 enigma

Since the government announced that there would be a change in subsidies to exclude the top 15%, the so-called T15 enigma has confused many people.

It is not clear where this T15 concept came from. One possibility is the reform of electricity subsidies which affected only 15% of electricity users, who by chance were mainly the wealthiest.

There is a basic misunderstanding that “targeting” subsidies in this way excludes the richest 15%.

All electricity users get subsidies below 600 kWh per month whether they are rich or poor. The subsidies end after your bill exceeds 600 kWh.

This is why the electricity subsidy rationalisation was so successful because it saved money based on electricity usage and even the rich still benefit so the changes were widely accepted and seen to be fair.

The savings from subsidy rationalisation so far have been effective in saving billions of ringgit.

Electricity subsidy rationalisation saves RM4 billion annually. Diesel subsidy rationalisation also saves RM4 billion per year.

Targeting of RON95 petrol subsidies is expected to save RM8 billion.

Floating chicken prices saves RM1.2 billion in chicken subsidies and has brought prices down for everyone.

The question of fairness depends on how the savings are used. The RM17.2 billion savings should be used for the welfare of the majority of the people.

If the savings are put into general government expenditure to pay higher civil service salaries then only 1.5 million people benefit.

If the savings are used to raise incomes for everyone then 30 million people can benefit.

The reduction for high-income groups is fair if they still get some benefits as in electricity subsidies for example but there are no obvious benefits to reducing subsidies for higher-income groups in education or healthcare.

This may create a two-tier system where the rich look after themselves and disengage from the public system which will suffer as a consequence.

For example reducing access to public healthcare for higher-income groups pushes more into private health, this pushes up costs and insurance premiums which they can pay but which the middle-income groups cannot.

These patients will leave the private sector and overwhelm the public system.

The same effect can happen in education. Removing subsidies to public education for the wealthy pushes them to use private education more which raises the price due to higher demand.

In higher education this effect crowds out middle-income and low-income groups who cannot get into public universities because they have low grades.

If higher-income groups cannot get into public universities more may go overseas and Malaysia loses income and talent.

Similarly, removing subsidies from foreigners is not fair because they work here and create value. They also pay taxes here.

So it is fair that they should benefit along with everyone else. Removing subsidies for foreigners is discriminatory and unjust.

The subsidy rationalisation is long overdue and credit should be given to the current government for tackling it so quickly.

It could have been implemented under previous governments but they did not have the courage to do it. So it is the right time now.

The key to the success will be in rationalisation along similar lines to electricity, so that everyone benefits but at a different rate. This is fairer and more efficient than punishing the rich. - FMT

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