RM77.3bil subsidies at ‘dangerously high’ level, says economist

 

A subsidy on bottled cooking oil, which costs the government RM20 million a month, will end on June 30. However a subsidy of RM4 billion is provided this year for cooking oil in polybags.

PETALING JAYA: Economists fear that government subsidies on consumer necessities are “dangerously high” at a projected RM77.3 billion this year, and are not sustainable in the long run.

The high subsidies would increase the country’s financial burden at a time when Malaysia faces the problem of staggering debts and an economic slowdown.

 Political economist Firdausi Suffian of Sabah UiTM said the projected amount of RM77.3 billion in subsidies, amounting to 9% of Malaysia’s gross domestic product, was “dangerously high”.

He said the optimum amount should be less than 2% of GDP.

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Firdausi Suffian.

“Theoretically, subsidies are ‘good politics and bad economy’ because it shows that the government would step in and help the rakyat, especially in hard times. However, if it keeps on intervening, the market won’t be able to adjust itself,” he told FMT.

Another economist, Barjoyai Bardai of Universiti Tun Abdul Razak, said it would be irresponsible for Putrajaya to continue giving out subsidies without a plan to boost revenue.

Barjoyai Bardai.

“Our expenditure on subsidies has become too high because the government keeps accumulating new subsidies and increasing the rates of existing subsidies. Now, the subsidies have snowballed, but they refuse to increase their revenue,” he told FMT.

On Saturday, finance minister Tengku Zafrul Aziz said subsidies for essential supplies took up two-thirds of the RM77.3 billion in total consumer subsidies, covering the prices of petrol, diesel, cooking oil, flour and electricity, and other necessities.

The projected total also includes RM5.8 billion in electricity subsidy for the second half of 2022, to ensure there would be no increase in the electricity tariff after July 1.

Firdausi said the government must rationalise and restructure the subsidy schemes. “The government cannot afford to provide subsidies to everyone. Therefore, they must provide targeted subsidy plans only to those in need,” he said.

Barjoyai said an integrated database should be developed for the targeted subsidy and cash assistance.

He estimated that the existing cash assistance scheme, or Bantuan Keluarga Malaysia (BKM), would benefit over 8.6 million people and four million households, but questioned if Putrajaya was sure that all eight million people needed the cash aid.

He also urged Putrajaya to develop a new source of revenue, such as an endowment fund similar to the Norwegian pension fund, which invests the country’s surplus petroleum revenues.

“We also have our own petroleum sector (Petronas). Therefore, we should create a similar fund model that could relieve the financial burden of Malaysia,” he said.- FMT