The Government has announced drastic reduction in fuel subsidies which will result in substantially higher fuel and electricity prices yesterday. As a result, there will be 78sen increase in petrol prices to RM2.70/liter from RM1.92/liter. Diesel is now RM2.58/liter up RM1 from RM 15.8/liter. Electricity tariffs are also expected to rise in the coming months.
While the increase in prices are expected and in all probabilities, unavoidable, what is perhaps more important is the Government's mechanism to redistribute the savings from the subsidies to ordinary Malaysians who are in need of assistance.
For now, the Government has announced cash payments by vehicle size. This involves annual payments of RM625 for vehicles below 2L engine capacity, RM150 for motorcycles below 250CC engine capacity. Road tax is reduced by RM200 for vehicles above 2L and by RM50 for motorcycles above 250CC.
While these measures seem fair and innovative at first look, they are clearly short-term in nature and have clearly failed to address the key pressing issues below:
- These efforts continue to distort transportation patterns, prices and preferences without encouraging or promoting the use of public transport. There are no incentives for Malaysians particularly those in urban regions to switch to public transportation which reduces our dependency of petrol, unclogs roads, and reduces impact on the environment as subsidies are given to vehicle owners. There is even talk about subsidies for buses to be reduced.
The country is expected to save RM13.7B from the reduction in subsidies but the savings are earmarked for everything except improving public transport which will help us in the long run.
- Increase in fuel prices should be announced concurrently with concrete plans to expedite the construction of mass transportation networks, such as extending the LRT and bus feeder system or to improve the existing networks. Without such plans, it does not bode well for the Klang Valley and other urban centres where traffic congestion is common place and public transport is poor.
- Finally, energy prices will result in secondary price increases of all our daily essential goods and services. The proposed vehicle-based cash rebates will only benefit those owning cars or motorcycles but not help those without who will still suffer from the price increase of everyday items. Incidentally, the affected will more likely belong to lower income group who need help to combat the effects of secondary inflation caused my reduced subsidies.