The shocking explosion of subsidies | Joint statement by REFSA & IDEAS

This is a joint-statement by IDEAS (Institute for Democracy and Economic Affairs) and not-for-profit research institute REFSA (Research for Social Advancement) released on Friday, 28 September 2012.

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Budget 2013: The shocking explosion of federal government subsidies

IDEAS and REFSA are shocked that the federal government subsidy bill for 2012 is now expected to hit RM42 billion, a massive RM9 billion or 27% above the RM33 billion originally forecast for the year.

Dato’ Sri Najib’s administration has quadrupled subsidies from RM10 billon in 2007 to over RM42 billion today. The massive 4-fold increase has clearly been wasteful. Properly channeled, the RM42 billion of subsidies in 2012 is sufficient to give RM1,560 per month to the poorest 1/3rd of Malaysian households. This would more than double their current incomes which average just RM1,500 per month, and is in stark contrast to the RM500 one-off BR1M payments which are still necessary despite the huge subsidies elsewhere.

Blanket subsidies such as for cheap petrol and sugar 1) encourage excessive and wasteful consumption; 2) discourage investments in improving productivity and efficiency; and 3) benefit upper class Malaysians who consume much more than their poorer cousins.

Cheap petrol benefits the rich more than the poor | Source: 'UMNO-nomics: The Dark Side of the Budget' by Teh Chi-Chang & Johnny Ong

In this respect, we are disappointed Pakatan Rakyat in its Belanjawan Pakatan Rakyat 2013 document also skirts the issue of subsidy reform. Pakatan Rakyat calls for total subsidies to be reduced in 2013, but does not provide substantive discussion of the issue.

As it stands, subsidies continue to be a major element in both coalitions proposed Budgets for 2013. REFSA and IDEAS are disappointed that both coalitions fail to acknowledge the debilitating effects of subsidies on our economic health.  Restructuring subsidies is the low-hanging fruit that will help restore fiscal balance and improve our dwindling national competitiveness.

IDEAS and REFSA call on both the Barisan Nasional and the Pakatan Rakyat coalitions to seriously address the challenge of subsidy dependency in their respective economic policies. REFSA and IDEAS would be pleased to assist in this matter of crucial importance.

 

Wan Saiful |  IDEAS Chief Executive ([email protected])

Teh Chi-Chang, CFA | REFSA Executive Director ([email protected])

Notes:

  1. The original amount budgeted for subsidies in 2012, as stated in the Economic Report 2011/2012 released last year, was RM33.2 billion. In the latest Economic Report 2012/2013 released today, it is now estimated that the subsidy bill will hit RM42.4 billion in 2012.
  2. Subsidies have increased dramatically under Dato’ Sri Najib Razak’s administration. Federal government subsidies were just RM10.5 billion in 2007. In 2010, that had doubled to RM23.8 billion; and in 2012 are now more than quadrupled to RM42.4 billion. The federal government projects the subsidy bill to fall to RM37.6 billion in 2013, but this is on the expectation of lower global oil prices rather than due to subsidy reform.
  3. RM42.4 billion = RM1,560 per month for the bottom 1/3rd of Malaysian households is calculated based on an estimated 6.8 million total households in Malaysia.

Download PDF of the statement

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REFSA is an independent, not-for-profit research institute providing relevant and reliable information on social, economic and political issues affecting Malaysians with the aim of promoting open and constructive discussions that result in effective policies to address those issues. Visit us at www.refsa.org

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