Khamis, Julai 17, 2008

FUEL DEBATE: Thinking Outside The Box

Hasil tulisan seorang rakan yang dikirim ke suratkhabar di Malaysia (unabridged edition).


Dear Editor,

The fuel debate between Dato’ Ahmad Shabery and Dato’s Seri Anwar, to me, was a huge disappointment.

I would like to present a different paradigm to the issue of subsidized fuel and I would like to also qualify that I am neither pro-BN nor pro-PR, but I am a proponent of good policies and governance.

Anwar presented his proposal on how to accumulate RM3 billion so that the price of fuel at the pumps could be brought down by RM 0.50.

He also mentioned, several times, that it is a necessity to reduce the price of fuel to ease the burden of the people, especially the farmers, fishermen and the poor.

If the government is to utilise that RM3 billion for the purpose that he suggested, what is the percentage of that amount that actually benefits the target group that he mentioned?

Recently it was reported in the newspapers that an estimated 25% of the Malaysians earn less than RM2500 a month. In another report, it was also stated that those earning less than RM1500 a month are classified as poor.

How much fuel does this group actually consume?

A poor household, might not even own a vehicle. A slightly better one, might have a motorcycle that consumes very little or maybe a small capacity engine car. They might not even use the car too much as they don’t have the luxury of spending unnecessarily on fuel anyway. Let’s assume that the household with the single car consumes 150 liters a month.

But what about the well-to-do households that have several cars that takes to the streets everyday? The husband and wife each drive their own cars, and so do the kids who drive to school or college. Assuming each car consumes 300 liters a month, that household would then be using 1200 liters a month.

Say, the government is subsidizing RM2 for every liter, that poor family would only benefit RM300 a month whereas the richer folks get RM2400 of government benefits. The families without any vehicles would not benefit at all, and the ones with a motorcycle would probably benefit RM60 a month.

So, would 25% of that RM 3billion be benefitted by the households with incomes less than RM2500 a month? Absolutely not! Infact, it would be much much less.

So how does a subsidized fuel system benefit the lower income group?

It is not about how to finance the fuel subsidy, but rather on the basic principle of subsidizing fuel that is sold to the public.

Most, if not all, would then say, the higher prices of fuel would have a knock-on effect on the costs of living, prices of all goods and services will be increased. This is where the government would have to step in, providing assistance directly to the target groups.

Apart from the usual government talk of using the regained oil subsidies to build better public transportation system, I urge the government to also “think outside the box”.

For a typical Malaysian household, their greatest concerns would be to have food on the table, to have a roof over their heads, to provide education for their children and to have reasonable healthcare.

Instead of literally burning billions of ringgit of subsidized fuel a year and turning them into smoke and fumes emanating from millions of vehicles on Malaysian roads, I have several suggestions on how the money could be used to help ease the burden of the Malaysian people with direct assistance.

The billions of ringgit that is earned by the government from removing fuel subsidies and the higher returns that it receives from Petronas must be used to do the following;

Stable and cheap supply of essential food items
For short and medium term measures, food supplies must be imported and the costs of doing so must be heavily subsidized. The prices of essential food items must be tightly controlled to ensure that the low prices are passed on to the public.

For the long term, government should create more food producing and processing industries using modern technologies that would provide better yield and viability.

Community housing
The Federal and State Governments should work together to build government-owned housing schemes which are rented out for a low rental to poor households. The terms of tenancy should be reviewed every 2 or 3 years to determine if that family still qualifies for the housing benefit.

If RM 1billion is used yearly to build housing units costing RM 80,000 each, every year 12,500 units of homes can be created for the urban poor. Rural poor housing could be provided at lower cost and less quantities.

Education assistance
The education for the next generation in the household is paramount for them to lift themselves out of the clutches of poverty. Those who are in school and coming from poor households should be provided with subsidized school uniforms, shoes and other schooling materials. All fees, whether from the Ministry of Education or the school administration must be waived for these group of students.

The poor households should be provided with free basic healthcare inclusive of the medicines that are required. Then, what about those households earning between the RM 1500 – 2500 a month? The benefits mentioned above could also be extended to them but the quantum of assistance be adjusted accordingly.

Income tax
Income tax should be waived for everyone earning less than RM 5000 a month.

Income tax brackets and tier should be reviewed so that the quantum to be paid as income tax is reduced. The highest tier should be reviewed to only be taxed on those who earn more than RM 30,000 a month.

This shouldn’t have any negative impact on the government’s revenue as the windfall collected from the abolishment of fuel subsidies and higher returns from Petronas would absorb the difference, and probably more. The government should also proceed with charging the windfall profit tax on the applicable companies and industries.

Tax breaks, relief and rebates would help to put money back into the pockets of the Malaysian people to cushion the impact of higher fuel prices.

Utilities Tariffs
Electricity charges should also be fine tuned and its’ multi-tier system improved. Those who use less than a certain kWh per month because they don’t have large houses or air-conditioning units or swimming pools should be charged a nominal fee. The unit rates in the multi-tier should then be gradually increased for the higher users.

The same should be done for water tariffs.

In essence, even with the higher prices of goods and services due to higher prices of fuel at the pump, the fact that money is being put back directly into their pockets would make it almost status-quo for the lower and middle income groups.

Higher income groups would have to change their lifestyles ever so slightly. Even in the US, they are trading in their huge-engine trucks, pick-ups, SUVs and sedans for more sensible fuel efficient mid-size sedans.

Mechanisms should also be put in place to help businesses. Transportation companies, fisheries industry and others, will need to get rebates or tax breaks to help them cope with higher fuel prices. Of course the government needs to quickly build and expand our public transportation systems, including having a good rail track service to deliver goods between the towns and cities.

It also goes without saying that the government must find ways to create more jobs, drive the economy forward and create more value in our economy. I am sure the bright and intelligent economists at Ministry of Finance, Economic Planning Unit, Bank Negara and others will be able to help the government come up with the correct mechanisms to ease the burden of the people, by directly assisting those in need.

The government needs to better explain to the people the logic and rationality of removing fuel subsidies. The government is losing the perception war because of its’ inability to articulate the reasons well. The manner, timing and quantum of the increase were also unfortunate.
The government urgently needs to do more to ease the burden of the people.

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