PR: Populists’ Dream, Economists’ Nightmare?

I’m sure those who are driving BMW, Mercedes or Volvo can afford to pay the full price of petrol. The public has to be educated and understand the issue at hand.

Why should we spend so much for something which does not contain any nutritional value and is linked to obesity?1

– Datuk N. Marimuthu, president of the Federation of Malaysian Consumers Association (Fomca)


The price of oil during my time was USD30 (RM98) per barrel while now it is USD80 (RM263) and it has even reached USD140 (RM460) at one time. I feel that it is more realistic if the price of oil is increased gradually until it reflects the market price as the Government has manage to maintain the price without any significant increase all these years.2

– Tun Dr. Mahathir Mohamad


Giving freer rein to private initiative and market forces, however, has important consequences. We may not be able to afford over-subsidised and under-priced energy.3

– Datuk Seri Najib Tun Razak


Pick your local idealists' champion: free water, lower petrol price, RM100 payouts for senior citizens. Someday the full force of global economic reality will hit them. Hard.

Giving subsidies and other form of support are only short-term reprieves but not long-term solutions.

If this is so and several firms are quite in this category, then an in-depth a priori analysis should give us the answer that they should not be approved in the beginning or told in clear terms that their venture is at their own peril if the economics do not support their presence here.

Thus, giving a subsidy to this type of firms is a bad decision, notwithstanding the apparent benefits of employment and others. It may be cheaper to give transfer payment to the workers directly.

From other perspectives, subsidies distort prices and contribute to market distortion. The latter sends wrong signals to the entrepreneurs in that their enterprise appears to be viable while, in fact, it so only because of the subsidies.

Energy-intensive industries tend to fall in this category because energy in Malaysia, gas especially, is well below market price, sending the signal that the energy costs are inherently low.

With the controlled price regime in place, the distortion gets amplified all the more.

In this regard, to fall into supply and price regulation seems natural but its efficiency and efficacy tend to raise questions.

Even in the matter of giving subsidy in cases of affirmative action, the subsidies can be subjected to examinations especially in the ways they are administered.

Diesel subsidy for fishing aims to reduce fish prices. While it is good in objective and purpose, it is quite questionable in the way it is carried out.

So is the price subsidy on rice production, which leads to high domestic prices, way above international price levels.

The distribution system in fish marketing may not pass the benefit of the lower prices to the consumer because of the tendency for the benefit of cost reduction to be enjoyed by the middlemen, or the high possibility of leakages and smuggling.

Let us therefore examine the use of subsidy and the manner it is implemented even for sectors and activities which are related to affirmative action.

However, subsidies may be given for those activities with economic potential and with inherent economic viability; the provision of subsidy merely enhances their efficiency. In all these, the leakages must be the minimum.

Now that the authorities are examining the subsidy issue and also currently exploring a high-income growth model, some of these concerns may be critically revisited.

In their present form, the subsidies are largely the excess baggage of past policy regimes. Some changes along the way are welcomed so that the nation’s welfare can be enhanced and government finance further improved, not at the margin, so to speak.4

– Tan Sri Sulaiman Mahbob, chairman of the Malaysian Industrial Development Authority (Mida) and former director-general of the Economic Planning Unit.


Indications are there is wide acceptance that subsidies are inefficient – in an informal SMS poll by Pemandu, six out of 10 people among 191,592 respondents agreed that subsidies should be cut. At Pemandu’s open house on subsidies on Thursday, an astonishing 90% of 1,291 respondents to a questionnaire said the subsidy rationalisation should go ahead.

If public affirmation is what the Government is looking for, it already seems to be getting it. What else is it waiting for?5

– P. Gunasegaram, Managing Editor, The Star


1. “Time for the subsidies to go,” The Star Online, 23 Mei, 2010, http://thestar.my/news/story.asp?sec=nation&file=/2010/5/23/nation/5711513

2. “Dr M agrees subsidy must go but says it must be done gradually,” The Star Online, 29 Mei, 2010, http://thestar.my/news/story.asp?file=/2010/5/29/nation/20100529154937&sec=nation

3. “Malaysia must man up, subsidies on the way out,” The Star Online, 8 Februari, 2010, http://thestar.my/news/story.asp?file=/2010/2/8/nation/20100208194310&sec=nation

4. “Subsidies and public policy,” The Star Online, 20 Februari, 2010, http://thestar.my/columnists/story.asp?file=/2010/2/20/columnists/atyourservice/5705872&sec=atyourservice

5. “Subsidies, taxes, expenditure and you,” The Star Online, 29 Mei, 2010, http://biz.thestar.com.my/news/story.asp?file=/2010/5/29/business/6362798&sec=business

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