End subsidies to end poverty

 

Most of the money the government spends on subsidies goes to companies, not to the poor.

This is because a subsidy pays companies the difference between the market price and the price at which they sell their products to customers. Of the RM78 billion subsidy bill for 2022 around RM52 billion, or two-thirds, goes to companies and middlemen and RM26 billion, or one-third, goes to low-income groups under cash transfers and other social assistance programmes.

It is also less expensive. According to our modelling, based on household income and using a progressive payment schedule, the annual cost of a basic income scheme for those earning below RM2,000 per month is RM1.5 billion. If the threshold is set at RM2,500 the cost is RM2.5 billion and for a RM3,000 threshold it is RM4.7 billion.

At RM4,000 the cost is RM11.5 billion and to capture households below RM5,000 per month which would cover the B40 group and many of the B50 group, the cost is RM20.2 billion. This is lower than the current social subsidies bill and allows the saving of RM6 billion to be targeted at groups, such as people with disabilities, who need specific and urgent help.

In other words, it is fully affordable within current budgets and it also happens to be around the average social subsidy over the last five years.

The government is serious about subsidy reform and poverty eradication, this is clear. To do it properly it must also be serious about structural reform to provide a world-class social protection system which can become the model for other countries and a legacy of the unity government in years to come. - FMT

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