When belts cannot be tightened anymore!

I was chatting with an old patient of mine after a consultation yesterday. He was probably suffering from a side effect of stress and not enough rest. I enquired about his job and he told me that he is working 2 jobs now, a daytime office job and part time taxi driving at night. He had to do this to make ends meet.

So i told him what any doctor would tell his patient under these circumstances– to rest more.

Then he started to pour his woes to me that he has already been tightening his belt so much over the past few years, that he dreads to think of ways to tighten it some more, since living cost is creeping up and food prices are going to shoot up. He told me that there would come a point that the belt cannot be tightened anymore, and that point is fast being reached.

With so much news on the need to cut subsidies in the newspaper ( it was even equated to opium), the government is in fact building up a case of cutting subsidies further. It is just a matter of time that subsidies on petrol will be cut further. When that happens, petrol pump prices as well as electricity tariff will go up.

I have mentioned before that subsidies are actually bad to economy in the long run. It will also create a subsidy mentality among the people. But removing subsidies in a stagnant economy will result in a lot of problems for the poor. Subsidy removal must be done very gradually, and that too, should be done when economy is expanding and real income rising.

I can’t help but recall a round table conference which I had attended in Feb 2010 on subsidy and the economy. In fact, I have blogged on this conference a day after.

I will paraphrase what i wrote then:

I attended a round table talk on subsidy yesterday. Although most speakers spoke about the need to do away with the cost of living subsidy, like the subsidy for sugar, petrol and so on, what a young man said about being cynical impressed me most.

This young man began by saying that even though all the speakers spoke about the need to do away with subsidy, he was against the idea because being a cynical person, he doubted whether the money saved from abolishing the subsidy (direct and indirect subsidy comes to about 80 billionRM a year), will go to development and helping the poor. He said that being cynical, he thinks that this huge amount of money will go to someone else’s pockets and if so, why should he give up his right to subsidy?

His reason is based on one point only, and that is the whole system is rotten. I thought about it and I think he has a very valid point.

With the rotten system and everyone out to make a fast buck, whatever mechanism of doing away with the subsidy and using the amount saved to channel to development and helping the poor would just not work . Remember that time when the pump price of petrol went up to 2.70 from 1.92? The government promised to use the savings to channel into public transport and make it more efficient. Did we see any money going into the intended sector? A big No of course.

I can’t help but think that if the money saved from abolishing subsidy (the 80 billions) goes into private pockets and results in a few more PKFZ, even though I am all for abolishing subsidy gradually ( with safety nets in place such as cash coupons and cash cards to be given to the poor) , I would want to change my mind and go along with the thinking of this young man.

After all, if you have lived in Malaysia for the past 20 years, you can’t help but become cynical.

This young man raised a very valid point.

We should start to withdraw subsidies slowly AFTER we ensure that the leakages and wastages are plugged first. After all the amount that has been siphoned out of the system is quite high, if we go by the reports of foreign media and investment reports.

The government must have the will to tackle corruption and cronyism, not just paying lip services, and expect people to tight belts which cannot be tightened anymore.

If subsidy withdrawal results in people unable to make ends meet, then expect social problems and crime rate to go up. If we do not clean up corruption first, expect corruption to go even more rampant and severe, since civil servants too will be hard hit by subsidy removal and they, being in a position to dictate things, will not doubt be tempted to find other sources of income under the table.

From 2004 till now, we have wasted 7 years to tackle corruption, which is perceived to be even worse now. We do not have another 7 years, given the conditions of world economy and the middle income trap that we find ourselves in.

But do we have the will?

- Dr Hsu's forum