Friday, April 25, 2008

Government's subsidy for fuel and gas

In Malaysia, the government spends a huge amount of money to subsidize a lot of services in the country. Subsidy for fuel and gas is estimated to be about RM35 billion, healthcare services and educational sector would easily swallow another RM25 billion. This subsidy is given to everyone irrespective of his financial status.

Often, the rakyat is unaware of the element of subsidy by the government in daily life and the present mode in delivering subsidy is not equitable, benefiting the rich more than the poor. Who should rightly receive a bigger portion of the subsidy? The government should reveal how we ditch out the subsidy. A rich man who drives a Mercedes pays the same amount for petrol as a poor man using his motorbike; he pays the same electricity tariff as the one living in a low cost house. In the same way, the rich have access to medical healthcare just as the poor.

When the government abolishes examination fees for public exams, to the rich, its a pittance, but to the poor, it may be significant. The time has come for the government to give money directly to the poor and let the market forces determine the real value, especially for fuel and gas. The next question is what is regarded as the level which entitles them to directly receive money from the government. The poverty rate used by EPU of course is outdated. The EPU needs to study at what level a family receives a direct grant from government, annually or twice a year.

Assuming that there are 28 million people in Malaysia and a household of 4.5 members per family, we are talking about 6.2 million households. Assuming a rough figure of 25 percent people are entitled to aids, we are talking about 1.6million people that are entitled to receive grants from the government of RM10,000. With that, we are only talking about RM16 billion. In the case of fuel where the subsidy is about RM35 billion, theres a cost saving of RM19 billion and the poor is more appreciative what the government is doing for them in the time of rising prices and inflation. Poor households who will not burn that RM10,000 on petrol and electricity tariff, this amount becomes more meaningful to them. I will only talk about healthcare financing scheme at some other time. There is still a lot of justification to re-look on how government disburses the subsidy. I acknowledge that these assumptions are simplistic at best. Feel free with helpful suggestions and ideas.

33 comments:

sebol said...

Dr Chua

Yes I Understand there are a lot of efford to maintain the price low but...

1. The Rakyat just want the result, not forced to understand current formula.
Rakyat doesnt really matter how high the price is everybody can afford it.


2. The root cause of the problem not mentioned in the "Penjelasan", which is the currency.

3. The current formula will make "gov has to spend bilion of money", but the realy is the subsidy is just "on paper" if we look at different angle.

feel free to read all my previous post about minyak.

http://sebolku.blogspot.com/search/label/Minyak

glokal said...

This is a very good article, it shows Dr. Chua is able to look at the big picture of governing. Subsidy costs billions and its system needs fine-tuning. The government needs to comprehend complex issue and not simply take the easy course. In politics, the ambition is to be the Prime Minister, not just satisfy with a junior cabinet post.

cy97 said...

Dr. Chua, just want to know if any of your colleagues who are in the government care to open a blog and let the rakyat to voice up their opinion in the blog. I was wondering if they are afraid to do so. MIC as a member in the government has done too little. This has give more reason to us to vote against them. Just imagine until now there are still too many issues that make us angry even though BN has lost half of its territory. Just to name a few, the Taman Mahkota issue, the ex-Menteri Besar still has the "thick face" to say it cost RM200 million to open out the road. The road was not built by them and it is an existing junction, Taman Mahkota is situated next to existing Highway. It all sums up to the government has give too much "right" to the Highway Concession companies to suck rakyat's hard earned money. We still have ministers like Azalina who care less to be accountable to whatever she did during her tenure as Sport Minister. We need more minister like Sharir that talk human language. I would proposed to MCA to do more right thing and does not bow to protocol of being a member of BN. Dr. Chuah, do you agree with me?

Lysendar said...

Dear Dr. Chua,

In order for the subsidy that can be equally benefit the rakyat, i think the government can learn from Singapore government. There are some policies pratice by the Singapore government are really good and it does help the low-income rather than high-income. Of course, all the policies should benefit all the rakyat, however, some of them really can help the poorer. I do agree that, the rich should pay more than the poor, which the subsidy should based on the household income.

Let's wait and see how the government going to do.
God bless........

Amanda said...

in ur article, you mentioned about rich and poor ONLY!what about middle class? people who belong to the middle classe, everything for them seems ngam ngam for a living for whole family? i think if the money (subsidy) take it GRANT to POOR ppl only...this really unfair..

everybody in this country are paying the tax according to their salaries...why ONLY certain group you ASSUMED they should get more and the rich people no need? this is considered unfair ady lor~ yes, i do agree that rich people might use more of the fuel and gas subsidy compare to poors but then in term of taxes, rich people also paying more on taxes...!!

Lo said...

Dr Chua

The problem with all these subsidies is that once they are given, people will always think they are theirs forever. I do not think the present gov dares to touch on the issues and put off subsidies altogether. Maybe what our gov can do it to slowly cut the subsidies like what they are doing with our petrol.

Sam Tam said...

Dr Chua - it is true that the subsidies applies across the board. But you and many others are only seeing one side fo the equation. Because on the other side, the "rich" are taxed more, depending on their level of incomes.

For Malaysia, the key question is how does the Government of the day use the tax collected? It sure looks like a lot of wastage and leakages to me.

If tax collected is efficiently utilized, the burden of subsidy would not be so significant.

笑看风云 said...

i don't understand how the subsidy work??

1) how much do the private sector benefit?--- lorry , bus transport and personal vehicle get ?

2)What about government vehicle for police, army, ship, plane. goverment official ,....... ?

3) what about the fisher man ship ?

4) what about car /lorry from thailand and singapore?

5) smuggle out of country.??

6)manufacturing industry??

7) sell to cargo ship park at our port???

with market price.
1) we have to adjust our life to suit our cost.
2)good public transport system.
- eg.high speed train at 250km/hr.
i will not drive , i will not take plane.the whole country travel time is short.people in rural area can move freely to work in city or industry area.
forget about jam during holiday season on N-S highway.

city bus, taxi will enjoy good business. pollution is less subsidy if still there will reduce.

time to work out compensation plan for the system instead of SUBSIDY.

what happen if oil is US200/barrel, malaysia got no more oil.????

Funniman1965 said...

I actually came back from a fishing trip 2 weeks ago and the tekong told me that his fisherman neighbour in Sabak Bernam area sell diesel to foreigners for RM 0.18 per litre.
Almost every week, they would make shipments using modified fishermen boat. Profits ran in thousands.

He told me that they buy at a subsidised rate for RM 0.10 per litre. How they get the diesel supply regulary is anybody's guess.

This subsidy is open to abuse. The real intended benefitiary often do not get them.

Lysendar said...

Dear Dr. Chua,

Can you please comment on OKT changed on the 4 states chairman? And why his brother OKC still the state chairman of Perak?

Thanks

Datuk Seri Dr. Chua Soi Lek said...

Are you really sure the rich pay more in taxes? I quote none other than Warren Buffet(currently richest man in the world) who bet that he would pay 1 million USD to anyone that can prove that he pays more in taxes then his secretary.

Granted that is an extreme case.

However, even though the rich do pay more in taxes, at the end of the day, they still do end up with more disposable income. E.g. a person who earns 10,000 a month even after maximal taxes can still take home 7,000. Contrast that to a person earning 800 a month.

Poverty is not always a choice. In my political career I have been to many places where there are people living in abject poverty. I often ask myself where the fault lies? Is it the system? The individual? Or have we failed as a society.

I have used an admittedly simplistic model in my posting. I realise there is a significant middle class in between who will get squeezed and however you decide to implement a subsidy, there will be ways to abuse the system as no one system is perfect.

Therefore there has to be some form of means testing -(another can of worms)

But just because it is difficult to fix doesn't mean we shouldn't try.

Guest said...

Yes. I agree it is indeed very difficult.The burden will be felt by the middle classes with salaries ranging from 2000 - 3000 of who are still have to support their family too.But the biggest challenge is to monitor this whole new subsidy programme, how to ensure that only poorest people are entitled for the subdsidy.

Dr. Chua, I agree with the "Chinese nicname" person opinions, why can't the Goverment just upgrade the public transportion to the extent that we don't have to rely on driving our own car to travel to the workplace anymore.Why waste a lot of money build flying over,highway,bridge etc, but in the end traffic jams are still there,much worst give the perfect reason for the so called "konsesi" to rise the toll price.

In KL for instance, we do already have commuter,PUTRA,STAR,Monorail,Taxi and bus,so the next step that required is to upgrade this public transportation into making it more easier and practical to the public.Only by this,I can see your idea subsidy to the poor will be succesfully implemented without burdening midle classes.

MariMe said...

Dr Chua...did you steal this idea from me? i have been thinking about thise for many years, even when people were rioting on the streets for fuel subsidies....the other relevant point is corruption- if M$20b or $40b is given back by Daim, Mahathir, Khairy, Ong Ka Ting, Ling Liong Sik, Samy Vellu.... we actually would have a lot to distribute back to the poor and have a better police force and ACA force..

anyway, what you said is exactly what is needed.

MariMe said...

Dr Chua, you are exactly right. i think you read my mind, this is exactly what im thinking. one more thing- corruption. if you collect back all the money sqandered by Mahathir , Daim, Khairy, Abdullah, Ling Liong Sik, Ong ka ting, Samy vellu etc etc, the country would hv hundreds of billions to be re-distributed back to the poor and the police force and the ACA etc.

teong wha said...

You do not give money direct to people as subsidy unless you have an excellent monitoring system to ensure there is no cheating along the way.We know the level of integrity of our government servants.

Malaysia is blessed with rich natural resources so by right the rakyat should not be poor.The reason there are so many people living under poverty line is because we are governed by
incompetent and corrupted people.

Unless this country is properly managed,subsidies is just a short term measure.Our currency is one of the causes of inflation as its value vis-a-vis other currencies is low.It is very expensive to send your kids to overseas for further study nows-a-day.

monsterball said...

Anwar have explained how he could reduce oil prices....in simple language....and he should know...being recognized and awarded ..as a world top leader recently..in financing matters. The award is naturally blocked out from papers.
Good clean management is actually simple and straight forward.All assistants need to do...are just follow simple rules.
A crooked company keeps three books...one for bank...one for Income Tax..and the other...for private viewing only....under locks and keys.
UMNO tends to show...they have many things to hide...with so much complications in managing the country.
The action by Toyo's wife...transferring RM9 mil...just 3 days after election...is a classic example of UMNO's crooked actions..ad they are experts to make all sorts of excuses and reasons.
Asking public to give comments for a proven corrupted government..is not a solution. Vote them out is the only way...to correct all the wrongs fast...and to avoid ...time wasted in arguments....ultimately..the real losers are the poor people.
All we need is to ask ourselves..what is UMNO's mentalities...reputation...and results??
The election result is the clear answer.
So lets move on.

Pearls said...

I am sure as hell is hot that the rich dont necessarily pay more tax compared to the average Joe or Jane. That is why there are plenty accountants around. They do the job for these rich buggers.

Yes, it doesnt mean we shouldnt try to fix the problem even if it seem difficult... correct! How to fix?? Sack the current government, withdraw all sort of subsidies, only subsidise basics such as water, electricity, education and health care and start all over again!

Admit it Uncle Chua, the current government is infested with corruption and people with no integrity even as human being what more in office with big responsibilities. These people have to go... infact, these people have to be severely punished to drive home a point.. it doesnt pay to have no honor, integrity and values.

Subsidies should be stopped and people may it be in civil or private sector should be paid the correct market wages. Yars, prices of goods will hit the sky but so will our wages. We can then determined for ourselves what sort of lifestyle we would like to have. We can also be the market driving force and determining factor for a lot of goods and services. No more having to put up with substandard goods/service. Lousy goods/services will be kicked out of the market. Basically, NO MORE PARIAHS! human and goods/services!

Yes, poverty is not always A choice but it is most of the time BY CHOICE! Havent you heard of the saying we are the master of our destiny? Most of the time, people choose to stay poor because they lack the will to want to make a better life for themselves. These people will bemoan and blame everything including GOD for their own miserable failure and life.

Perhaps, in the villages and kampungs it might be a little different. This little different is perhaps in the department called people's mindset. Let me tell you something, in this age and time, we still have people who dont think it is necessary for a girl to be given opportunities to study as much as she could all because she is a girl!! This I must say is where the failure is.

There are many ways a good responsible government can help its people. Selangor Government is doing part of it.. free water for example. Plenty of household will benefit from it. Infact, in my opinion, this benefit can be further enhanced to ensure only deserving households enjoy this benefit. Perhaps using house assessment to determine the RICH and POOR area? People who stays at whatever Heights I am sure can be exempted from such benefits. Afterall, their marcidees and what have you are pretty big bucks right? So, if they can drive such cars and their wife(wives?) can go around flaunting their many coach and LVs, they can most definitely pay for water!

yapchongyee said...

aZympIt is time for all of you in the MCA to realise that you are thebiggest traitors to the Chinese people, It is bad enough that UMNo spits in your face and you like bloody dog just wipe off the spittal off your face.

In all of 50 years we Chinese had been having the worst of time, and now that the Chinese & Indians realise that we have political muscle in our own right, are we to tolarate the treachery of the MCA & MIC ? You in the MCA had sold us down the shit hole for 50 years and now it has to at least prick your conscience and make you realise that you have acted like a thief.

Do the right thing and cross over to join Pakatan Rakyat and do something good for a change.

Sarjan low said...

Subsidy of the petrol should slowly convert to sudsidy for technology.

For example, Diesel usage in Malaysia automotive is poor as projected as dirty, inefficient & damage engine. Yet in Europe, diesel technology been very successful in automotive sector. Its not only save but also more clean & efficient.

NGV technology and facilities also another key area can be improve for reducing petrol consumption purposes. Yet it all depend on PETRONAS.

The last sector is again Public transport. Subsidy of petrol must channel to improve the public transport like bus & LRT in area of creating more convenient system to all. I dont think i want to use my car to wok if the LRT & Buses can reach accurate & convenient.

PL said...

Abolish the stupid AP for cars and reduce the subsidy gradually. Then savings in subsidy be converted into direct grant for the needy.

justin.tan said...

How come no one comments on Government educational subsidies/scholarships in Malaysia.... this is something i have a problem with on the fundamental level. The current system/policies are the most absurd ones, They are designed to benefit a single race but the development of a country.

how many clever non-bumis score top marks and yet are denied of a government linked scholarships? The so called 'quata' for pubic universities is out dated and biased.

The general rules apply, these privileges should be based on merits... and NOT skin colour/religion!! Oh no, not in the boleh-land.

and since healthcare resources are so limited, i wonder how much were being used by illegal foreign workers and their families?

Oil subsidies for the poor.... how big a piece of cake do you think they consume? a large proportion of these commute with motorbikes which use significantly less petrol... b4 you decide on any subsidy for the rakyat, there is already a built in imbalance in the equation. Like in most places, the poors are being deprived. Before you forget, non-malays in malaysia are not born with bags of gold bullion alongside and since poverty does not distinguish skin colours. This prompts me to ask the pertinent question.... HOW come and why are we being treated differently like a second class citizens??

justin.tan said...

Dr.

will appreciate any comments...

just want to share an idea with you tht i have for a long time which may help with the easing of the load on PG bridge.

Isnt it feasible for the government to propose a ferry service (more below) between the 2 sites whilst waiting for the 2nd bridge to be be built (if it does go ahead).

most of the congestion i believe is caused by the sheer number of employees fr various companies/factories fr the industrial sites fr the mailand ie Butterworth. So, lets consider..

1) instead of using the current vintage ferries on the new sites (batu kawan, batu mau), consider large hovercraft typed mass vehicle/passengers carriers- this travel at a substantial speed over rough waves and does not require a pier/ jetty/ dock as the crafts are able to travel straight to dry land connecting with exit roads or huge car parks.

2) Peak hours - the ferry services/bus kilangs are restricted to peak hours only to save costs.

3) Employees will drive up and park their cars at a large car parks manned by regular respective company/factories bus kilangs tht will transfer straight to the factories via the hovercrafts fr Butterworth and vice versa.

4) Commitments fr local companies - all local companies should be encouraged to play their part in reducing CO2 and partly fund/sponsor (incentives driven) for the bus kilangs ( travel on special bus lanes) that transfer the employees to and fro the ferries sites in PG/butterworth.

5) Possibility of converging this with the monorail to replace the bus kilangs in future.

This seems like a major military operation, but with some clever planning, change in laws, ppl change in behaviour/going green, incentives.. i think this can be pulled off.. who knows, we may not require a second bridge afterall..!!

p/s this must be operated by the federal government or even better grant the license to the Penang government... not the 'PLUS' tht sucks the money out of commoners.

anyone knows how much road taxes are collected each year??

hamdan said...

Bravo Dr. Chua,

I can see in you a person that can separate people and party. To be able to apply logic with a good mix of heart.
I do not support your party or any Bn component as I think they have long since corrupted their own reason nfor existance. And worse they have started a process of preventing others from doing good for the people.
I might be a lot younger than you are but I wish to offer a word of advice if I may. it is obvious that you still have care about the people of this country, why not leave the party and carry out the good work. The peopl eneed level minded men like yourself regardless of party affiliation, race or religion.

Funniman1965 said...

No need to be so difficult in trying to come out with a formula for petrol subsidy.

Generally, there are 2 classes of citizens ie affordable and not affordable. The affordable ones have cars and their poor cousins have motor cycles and they take public transport. The percentage is about 40% to 60%.

All the Government need to do is to give below cost fuel subsidy to these poor people and to the public transport. They can even have fuel kiosks that cater only for motor cycles at a special price.That will definitely appease majority of the poor Malaysians.

As for the guys with cars, they can pay as usual or even at par with the likes of foreign countries. If you can afford it, you pay for it as the saying goes.

Whatever savings you have later, you allocate it to the improvement of public transport and the environment such as anti pollution catalytic converters for cars and motorcycles. You be surprised that even cities like New Delhi,Bombay or Bangkok have stricter pollution laws compared to our Kuala Lumpur.

KIMHO8 said...
This comment has been removed by the author.
Darren said...

I think is fair to said that everyone of us is sharing the equal rights in general, which I feel it is alright, you can't blame a rich man to be rich as the subsidies doesn't affect them than the someone who is poorer. It is just the means of how one person manages its wealth and finances. I rather keep it this way, that vary out the differences of for different people of different classes. Then when that happens, how do you define which class are you in and what is the minimum and maximum of each class range.

Darren said...

I think is fair to said that everyone of us is sharing the equal rights in general, which I feel it is alright, you can't blame a rich man to be rich as the subsidies doesn't affect them than the someone who is poorer. It is just the means of how one person manages its wealth and finances. I rather keep it this way, that vary out the differences of for different people of different classes. Then when that happens, how do you define which class are you in and what is the minimum and maximum of each class range.

笑看风云 said...

DR. CHUA
talking about AP for vehicle

market talk that customer paid heavyly for AP of vehicle .
why not the government issue directly import AP for vehicle owner and collect the AP price RM 30,000 to rm 50,000 / vehicle ,instead of other people make the $$$, i don't know if they pay any income tax for the AP they sold??


cut monopoly, increase tax income, and reduce corruption.

don't let company/ individual control the AP !!

myenvelope said...

In order to provide subsidies based on income, and prevent fuel smuggling, the subsidy to the price of fuel must be removed.

Unlike Singapore where it is a small place, the impact on goods transportation in Malaysia is unavoidable. The most adverse effect of removing the subsidi is the prices all consumer goods. If not done properly, the citizen may have to pay more in the end. Even if the poor receives more subsidy than the rich, they have to pay more in daily consumables!

We know it. Businessmen always pass the extra costs to the consumers. Eventhough how rich they are, they will never sympathise the poor and absorb the extra costs. How then are we to make sure the poor are not affected?

Maybe the only way is through income tax rebate based on income. The rebate must be calculated properly to include inflation of goods due to higher fuel price. This way, the richer company are taxed more based on their profit, the more they charge, they more they will be taxed. While the poor enjoys a tax rebate which will help them cover their high daily expenses. If your income is very low, the net would be a payback from the income tax department.

How's that sound Dr?

glokal said...

Dr. Chua, has a look at this article, any solution?

KUALA LUMPUR, April 27 — Some are businessmen. Some are triad members. Some are politicians. But they have a few similarities: they are politically-connected or enjoy the patronage of law enforcement agencies in their state or districts and they head some of the biggest diesel smuggling syndicates in Malaysia.

On average, each of them earns up to RM50 million a year from diverting heavily subsidised diesel from petrol stations or fishermen to factories and construction sites in Malaysia or to waiting barges and fishing boats headed for Thailand and Philippines.

Over the past two years, the government has been paying between RM20 and RM30 billion in subsidies so that certain categories of Malaysians can enjoy lower prices at the pump. But in reality much of the consignment of the subsidised diesel has not reached their target market. In short, billions of ringgit in subsidies is being wasted on Malaysia’s neighbours.

The Malaysian Insider understands that the Customs and other enforcement agencies have identified some of these big diesel smugglers. They know that they are based near fishing areas, sea ports and border areas like Pantai Remis, Malacca, Kuala Selangor, Prai and Bukit Kayu Hitam. A couple of the big operators are in East Malaysia. The use of nanotechnology has even given the authorities the ability to pick out consignments of diesel being smuggled.

Still, the big players have been untouched by any enforcement action. The authorities have not acted against the syndicates for several reasons. Some of the syndicate bosses have political patronage and have not been afraid to show off their connections while others work "closely" with enforcement agencies officials in their areas. They have been known to offer RM8,000 per tanker to officials at the checkpoints to Thailand.

Also, all of them have fierce reputations and are known to have bodyguards or own firearms. So enforcement officials are wary of tangling with them.

The Insider has learnt that the use of nano markers has enabled the government to prevent about RM1 billion in subsidised diesel from being smuggled out of the country or diverted to consumers not entitled to get the subsidies. But this figure can easily hit RM5-RM10 billion if Customs, Domestic Trade and Consumer Affairs and police officials crack down on the big syndicate bosses.

Typically, the syndicates buy subsidised diesel from fisherman at RM1.50 per litre, 50 sen more than what the fisherman pays the government. They sell the smuggled diesel at RM2.30 per litre, 40 sen lower than the current market price of diesel. After taking into account transport and other expenses, they make a profit of about 60 sen per litre.

Interestingly, the diesel purchased by fishermen has almost tripled in the last three years from 320 million litres to 1.2b litres but without a corresponding increase in the fish haul. This suggests that many of the fishermen are selling their consignment of subsidised diesel to syndicates. In view of the food security crisis affecting Malaysia, the trend of fishermen not going out to sea is an alarming one.

itsme said...

itsme said...
Dear Dr Chua,
Your idea sounds pretty interesting, but,don't you agree that it would be near impossible to get it implemented. How would you define "poor" and the so-called "middle-class" pple.
Let's ask ourselves why do the "poor" pple needs petrol... mainly to get from point "A" to point "B"...Well, if pubic transport is improved I believe most of us would prefer to use it rather than having to ride a bike or drive a car. So, the root cause of the problem lies primarily in the lack of good public transport. The government should seriously look into this area of weakness. Perhaps, a team of pple from the Transport Ministry should be sent overseas to neighbouring countries (like Singapore or Australia) and study how these countries managed their public transport services and implement something similiar. What do you think,doc ?

Datuk Seri Dr. Chua Soi Lek said...

Food for thought

How about using the money saved from subsidies into providing free education for all Malaysians?

If you had to subsidise something, at least subsidise something worthwhile that can contribuite to the future rather than mega-projects.

Currentaffair said...

Testing

Welcome to my Blog

As a concerned MCA member, I am trying my best to help in the process of rebuilding and repositioning of the party.

Therefore, I welcome party members and members of public to post your constructive suggestions and opinions on my blog on how to rebuild and reform the party, eventually enabling MCA to regain support from all party members and the community.


Thank you for your suggestions.