Stop flogging the Malaysian Subsidy Mentality, Plug the government leakages instead


The proposed subsidy rationalization by PEMANDU is solving government cash flow problems but unfortunately at the cost of the people’s welfare.  It appears a lot of claims and justification being used to remove these subsidies, however very little being done to discuss the core of the cash flow problem faced by the government – the leakages in government spending.  Datuk Idris Jala you should be ashamed of yourself.

According to Idris Jala the government debt stands at RM362 billion and rising and may reach RM1.158 trillion by 2019 and the possibility that Malaysia may go bankrupt after the Greece footsteps.  Actually this is against the statement made by Najib recently where he assures the nation that Malaysia is not affected by the Greece contagion.

The total deficit the government need to cover amount to RM47 billion.  The total subsidy is about RM74 million.  Details of subsidies are Social (RM42.8 billion). Fuel (RM23.5 billion), Infrastructure (RM4.8 billion) and essential food (RM3.4 billion) further breakdown is not available.

The biggest chunk of the subsidy is actually social subsidy which has no further breakdown and the lowest is food subsidy which is insignificant.  The issue here is actually the size of Social subsidies.  Yet this was not explained thoroughly.  If this amount includes subsidies for health services, then PEMANDU must review the market price of medicine and pharmaceuticals and compare that with the price the Ministry of Health is buying.  There may be discrepancies here which must be rectified to resolve some of the issues.

In 2008, at the height of the global fuel hike and global price for crude is about USD140 per barrel, the fuel subsidy the government have to bear was RM17 million.  Today the global price for crude is about USD70 per barrel, yet the fuel subsidy is RM23.5 billion.  Why the discrepancy?

Idris Jala is claims Malaysia consume more fuel per capita than many countries including Singapore, Indonesia, Thailand, China and India.Have the government made serious effort to combat the fuel subsidy leakage?  Take Sabah , there are 1,200 trawlers registered with the Fisheries’ department.  However, there are only 200 real trawlers (physically present), this means there are 1,000 phantom trawlers enjoying fuel subsidies.  How sure is Idris Jala that similar phantom trawlers do not exist in Lembaga Kemajuan Ikan Malaysia (LKIM) registry throughout the country?

Therefore, has PEMANDU Labs ever consider plugging the leakages in government spending, before taking the easiest and convenient way of reducing the subsidies?

Idris Jala must understand the reason for creating the subsidies in the first place.  Allow me to enlighten you.

The main reason for creating subsidies in the first place was because Malaysia’s competitiveness.  One way of doing this is by lowering the cost of production i.e. lower wages and lower utility tariffs.  In this way the government can attract more Foreign Direct Investments (FDI) to choose Malaysia.

In the 60’s and 70’s Malaysia was also facing similar cash flow problem in addition people were migrating from the rural to the urban areas seeking employments.

The country’s economy grows because excess labors from the rural areas have jobs and wages (even though suppressed) in the urban areas.  As the result, the economy grows due to higher domestic consumption.  Having income also means having savings; Malaysia is one of the countries which enjoy a high rate of savings.  These spending and savings actually stimulate the economy; the construction sector plays a more prominent role.  People have money to buy houses and raise a family.  As the result the economy expands further.

The manufacturing and electronic sectors were the main engine of growth for the country.  From 1987 to 1997 the Export Oriented Industrialization strategies in Malaysia was a roaring success.  Mainstream national development focuses on the Malaysian industrial belt.  Agricultural state such as Sabah was put on the back-burner and given less priority.

By 1990, instead of using this success to strengthen the Malaysian economy, vanity permeates the decision-making process.  The Malaysian success also brings with it the seeds of Malaysian decline from global prominence.  Many mistakes made, the choices to move forward was hijacked by greed and self glorification.  Unless these mistakes are acknowledge and addressed appropriately, Malaysia may even regress back to be a Third World country.

Malaysia made some critical mistakes, instead of concentrating and developing its small and medium enterprises (SMEs) to support the FDIs, Malaysia decided to become a developed nation on the back of the car industry.  Industrial cluster concept was conceived and PROTON forms its nucleus against the advice of its Japanese counterparts.

In addition, Malaysia went into a spending binge.  Building Twin Towers, Sepang F1 racetracks, Kuala Lumpur International Airport, Bukit Jalil Sport Complex, Putra Jaya and Cyberjaya are good for self-esteem but economically unproductive.

Today the demand for Malaysian assembled consumer products is declining globally.  In addition, there are intense competition from China, Vietnam, Cambodia and Indonesia.

Therefore, Malaysia is face with this double trouble situation.  The success of the 80’s and 90’s created a large middle-income population with consumer taste and they are finding it more difficult to make ends meet.  The decline in demand for consumer products and the flight of industries to neighboring countries means more people will be unemployed or soon to be unemployed.

Removing the subsidies may help the government deficit and subsidy pay out but it will also means from now on more goods will be more expensive for the people.  To do this to the people amidst higher unemployment environment with less source of income is actually the government hitting the people with a double whammy.

I may not be clairvoyant; it’s difficult to predict the future.  But I am pretty sure by abolishing government subsidies, Malaysia will break away from the “Middle income trap’, because we will be go back to be a Third World country once more.

Sabah Sifu

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About sifusiber
A husband & a father who wants his children to have a better future

4 Responses to Stop flogging the Malaysian Subsidy Mentality, Plug the government leakages instead

  1. vincentgoh75 says:

    Sifu,
    There seems to be a lot of leakage in the fuel subsidi especially to the fishermen. How do you think the government should stop this type of leakages?

    • sifusiber says:

      To check on this abuse is easy, the issue is whether people who provide the license for trawlers and fuel subsidy have the will to check on this abuse. Every year the trawler owner will have to renew their license. Instead of just looking at the paper license, the authority must check on the physical boat and the license number must be stamp all over the boat. Some owner may have more than one boat, checks is required for every boat.
      The present practice is that, the owner will just bring the paper license to the authority and the authority just renew the license based on the paper that is shown. Then the owner of the license will just go to Petronas station and claim the diesel fuel which they buy at subsidised price. Often this fuel is collected by the buyer who pay the license owner a bit more than the subsidised price but less than the pump price without Petronas station knowing anything about it.
      In this way the trawler owner get money by just selling the rights to the license. As the result the government is giving money away without any economic productivity. This is what is meant by leakages in the present government system. It is not surprising if we observe from the PEMANDU report Malaysia uses a lot of subsidised fuel.
      So if the government is serious to plug leakages then they should revamp the existing system of issuing license through the State Fisheries Department, Fuel subsidy system through the KONELAYAN and the LKIM.

  2. sifusiber says:

    Its good to have someone who is interested in this issue. This issue however is not as simple as that. Even when the Malaysian economy is not integrated with Sabah, what happend in Malaya will have some impact to Sabah. After all we use their ringgit and banking systems.
    This is typical of government specifically in Malaysia. On one side they want to gradually abolish the subsidy but at the same time they want everyone to feel good. This is when the feel good announcement made to the people. Therefore if our economy grows by 10% in the first quarter why worry about the subsidy then? The fact is that the government is facing cashflow problem. They may have paper value as in Danaharta and Khazanah Nasional but they do not have cash. The government can print more money, but the possibility of a run-away inflation is real. All the cash that people are holding will become toilet paper. So printing money is not an option.
    The easiest to create cash is by cutting back on the subsidies, but the subsidies to the people is so small. The big numbers are in the unknown subsidy such as for SOCIAL. If this amount include government debt repayments, it should not be counted as subsidies.
    What the government cannot get through their head is that subsidies in this country is closely tied up with the country’s competitiveness. If the government abolish the subsidies, Malaysia cannot be competitive anymore. Not competitive menas no FDIs, no FDIs means no job for the people. If there is no job for the people it means the economy is not growing. If the economy is not growing where will the government gets the money to invest to further strengthening the economy?
    Sabah is going to be worse off. Firstly, no subsidy means the price of goods will shoot off the roof. Its not because our businessmen is making more profits but it is because the price of goods that they get is already expensive, they are only making the same margin or worse lower margin. Secondly, the freight charges for goods also will increase, especially with the Cabotage policy still in place. The ship owners will do it regardless their ships is using bunker oil i.e. the cheapest oil in the market and unsubsidised.
    Therefore, if our local leaders is not doing anything about it, then Sabah is in for a very hard time.

  3. agmustakim says:

    Sifu,
    I have been reading the newspaper both from Sabah and National papers and I find there are conflicting reports. I see some in the government is also condeming Idris Jala for this disclosure. I may not be interested in what happend in other countries and other states in Malaysia. I am very concern at what will happend in Sabah, if the subsidy is abolished even on a gradual manner.
    Thank you

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