Monday, September 9, 2013

FUEL SUBSIDY

As posted by Dr. Mahathir Mohamad at Che Det on September 06, 2013

1. The Government has withdrawn subsidy for petrol by 20¢ or roughly by 10% of the pump price. Businesses are already talking about raising the prices of goods they sell. They say that they have to pass on the price increase to their customers.

2. How does the price increase affect business? That depends on how much oil including transport cost enters into their business or products.

3. Assuming oil makes up 10% of the input into their products or services. This will mean 10% of 10%, that is 1%. It is a percentage in terms of increase in cost which most business can easily absorb. There need not be any increase in prices of their products or services.

4. Of course some products or services may have 50% or more of fuel needed. For example transport business. Even here the fuel needed is not 100%. There are other costs to bear. The increase in cost should therefore not be 50%. It should not be even 10%. It should be only 5% or only slightly more.

5. Malaysians must accept prices to increase over time. It is not possible for prices to remain fixed over long periods of time. Generally incomes have also been increasing. Surely part of the income increase must go towards paying for the increase in cost of living.

6. Government I think should monitor the effect of fuel price increase on major industries. This is essential to prevent runaway inflation due to profiteering.

7. I think it is imperative that subsidies be reduced. But it should be done slowly so as to allow people to adjust.

8. It is difficult to regulate subsidies so that only certain deserving people or industries enjoy it. We know of people who sell subsidised petrol to other countries even. Still the idea of regulating subsidies should be considered.

9. The Government’s excuse for reducing subsidies on petrol is in order to reduce deficits. But this alone cannot help. Government need to be more prudent with regard to its expenditures. They should be properly budgeted for. Giving money for people in order to help them financially is good. But the Government needs to be more selective. I notice some of the BR1M receivers spot new cars and decent houses. If the Government wants to give money it should be to the really poor. It is not good to make the people too dependent on the Government. It should be noted that most socialist and communist countries have failed simply because revenues do not increase when people are not productive. Paradoxically it is at the time when people are not productive and revenues are low that Government needs to dole out more BR1M and subsidies.

10. I am no expert in this matter but I do hope that some Government people might read this.

Thank you.

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