Friday, May 20, 2011

Subsidy Cuts: Where are the Mitigation Measures?

When Pemandu announced its subsidies rationalisation plans in June 2010, it has proposed to cut subsidies for fuel, electricity and essential food items on a quarterly or half-yearly basis.

The BN government has since announced several rounds of reduction in subsidies for fuel, sugar and other items. The price of sugar for example, has increased from RM1.45 to RM2.30 per kilogramme, or an increase of 58.6% in less than 18 months.

Diesel subsidies for critical transportation companies will also be reduced and the cost is expected to increase 24.1% from RM1.45 to RM1.80 per litre. In addition, statements made by Ministers over the past few days indicates that RON95 petrol used by the majority of Malaysians will be increased further in June, after 2 rounds of hikes in the 2nd half of last year.

Despite repeated denials and assurances from the Prime Minister, the inevitable outcome of the reductions is to exacerbate inflation in the country, already suffering from rising global food pricesm.

The Government had last year assured Malaysians of lower income groups that the impact of subsidy reductions on their living standards will be cushioned with a series of mitigation over the next 2 years.

For petrol subsidy reduction, Pemandu has proposed a cash rebate mitigation plan for motorbikes less than 250cc and cars less than 1000cc amounting to RM54 and RM126 per annum. As for the reduction in food subsidies, Pemandu had proposed a cash rebate of RM20 to MyKad/MyKid holders through post-offices for the first year, and subsequently through “MyKasih card” for those with income below a certain unspecified threshold.

However to date, despite the several rounds of immediate subsidy cuts, the Government has completely failed to disclose any proposed mitigation measure, much less implement any of them. It appears as if the Government is trying to pretend as if no mitigation measure has ever been proposed in the hope that Malaysians will soon forget about it.

The people who will suffer most from the repeat rounds of subsidy cuts are those who are in the low and lower-middle income groups. The lack of concern from the Government for the bottom 40% of income earners in Malaysia will only accentuate the already high-levels of income inequality in the country.

As it stands, the World Bank Report on "Inclusive Growth" in November 2010 has highlighted the fact that income inequality in Malaysia is among the highest in Asia and is close to the levels suffered in South America. In addition, the high levels of inequality has remained stubbornly high over the past [decade].

Hence the Government's continued absence of measures and concerns to help the bottom 40% of income earners in the country to cope with rapidly rising cost of living, worsened by the repeated rounds of subsidy reduction will only increase the degree of inequality suffered in Malaysia.
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