Thursday, July 15, 2010

The right move

Prime Minister Datuk Seri Najib Tun Razak should be praised for cutting subsidies even though the political cost may be high.

Today, he announced that the price of RON 95 petrol and diesel will go up by five sen while that of RON 97 petrol will be subjected to a managed float which will fluctuate according to world prices.

The price of sugar went up by 25 sen per kg and that of LPG was up by 10 sen a kg.

He gave three reasons to justify the reduction in subsidies - the subsidies benefitted foreigners and wealthier Malaysians; the subsidised prices of some products encouraged smuggling; and thirdly "unless the government reduces our fuel and sugar consumption, we face potentially serious consequences as a nation".

Previous administrations had been reluctant to reduce subsidies even though economists and those with common sense could tell anybody who cared to listen that the system and culture of subsidising could not be sustained.

This was because any reduction in subsidies would result in an increase in prices of certain goods which would affect the majority of the population, especially those earning low and even middle-level incomes.

Since this would affect a large number of Malays, previous governments did the politically-correct thing - don't fix it if it ain't broken yet and just passed the buck to some sucker in the future.

But they were just postponing the inevitable - the cost of subsidising has risen so high that the opportunity cost of it is incalculable. If I'm not wrong, the cost of subsidies in the annual Budget is about as much as the amount allocated for development projects.

Much of the Government's revenue comes from Petronas and for the next few years, Petronas can still make plenty of money. But inevitably, the day will come when Malaysians will spend more money on petrol than what Petronas makes from its exports i.e. Malaysia will become a net importer of oil. That is when all hell will break loose.

Top Petronas managers have warned previous Governments about this doomsday scenario before, but previous Prime Ministers did the politically-correct thing - don't do anything and let their successors worry about the issue.

Well, their successor did exactly that - worry about the issue - and he has actually done something about it.

The people will feel the pain, the Opposition politicians will play up the issue, some votes will inevitably be lost, but Najib - like it or not - has done the right thing.

There is an old saying that a stitch in time saves nine. It is very apt for the current situation.

What Najib did will ensure that the finances of the nation will not be in dire straits years from now (when he may not even be the Prime Minister). It will benefit Malaysia and Malaysians.

His move to reduce the subsidies also reveals another thing - the general election will not be called in the next six months or so.

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