July 5, 2008, Malaysian witnessed the real impact of the rapid increase in world crude oil price. After detailed study and serious consideration, the federal government decided to raise the price of petrol and diesel at the pump. The new price will be a 40% increase for petrol to RM2.70 a litre and 60% increase for diesel to RM2.58 a litre. Although the action was seen as a political suicidal act, but the truth is that since the second half of 2007, the world crude oil price has been rose up to 150%. The realities were the government are unable to allocate more subsidies which were ballooned from RM30bil previously to as high as RM50bil now.
Although the Government action on reducing the petrol subsidy will be giving a direct impact to the daily lives of the Malaysian, but the government did not forget their duties to help the citizens. A number of actions have been taken to ease the burden of Malaysian and these temporary measures were RM625 cash rebate for car owners, RM150 cash rebate for motorcyclist, RM200 road tax reduction for vehicle more than 2000cc. The government also initiated a few rules to cut the government officer’s entertainment allowance in order to reduce the federal government expenditure. After the reform of fuel subsidies, it is expected that the government will save about RM13.7bil. The following chart 1 shows the new allocation for people centric projects from the savings.
Chart 1
Projects New Allocation
National food security policy RM 4.0 bil
cooking oil subsidy RM 1.5 bil
imported rice subsidy for Sabah and Sarawak RM 0.4 bil
flour subsidy RM 0.2 bil
bread subsidy RM 0.1 bil
petrol, diesel and gas subsidy and rebate RM 7.5 bil
Total RM13.7bil
(Source: Prime Minister Office, Malaysia)
Nevertheless, list of action taken above was just a temporary measure before a more comprehensive relief packages which will be released on the Budget 2009 in mid August. Therefore, we suggest the government to kindly provide more efficient relief packages to help Malaysian in riding out of the high crude oil price era. In the mean time, we also must not forget and ignore the poor family and the hardcore poor families which were facing the most difficulties in daily living among Malaysian.
According to Department of Statistics survey in 2007, the country currently have 5.8 million households, and it is expected that 8.6% of household are having total income less than RM1,000. We hope that the Government will give more attention to these 500,000 poor households. We also recommended the Government through the Department of Social welfare, set up an efficient mechanism to select these poor and hardcore poor families and allocate them a sum of cash assistance. In the same time, the government must also provide technical and vocational training to these poor and hardcore poor family members. The opportunities in gaining skills will allow them to increase their family income and to an extent, they will be able to gain an opportunity in conducting small-scale business activities.
We have to admit that there are structural inefficiencies in the federal government administration. The public service delivery system was deeming to be inefficient. Therefore, we urge for a closer working relationship between the Chief Secretary of the government and the Special Task Force to facilitate business (PEMUDAH). With a joint cooperation from government and private sectors, we hope that they will be able to remove the barricades in government services and ultimately removing obstacles that affect the inefficiencies in the public delivery system and services.
Government must make a clear stand on removing the outdated government procedures, reducing bureaucracy and red tape. We believe that the simplification of administrative process is the best way to reduce corruption practices and eventually will help the citizens and government in savings costs. The best solution here is to let the accountants and auditors to re-assess the federal government operating costs and development costs to reduce or cut unnecessary spending. We believe that by ensuring a lower expenditure and a higher taxation income will lead to a better government’s financial and economy position.
In order for the citizens to adapt to the changes and switch to use public transportation, we urge the government to set up a drastic plan and solution to revamp the public transportation system. Syarikat Prasarana Negara Berhad (SPNB) did a survey after the oil prices hike and the survey shows that public bus user rose by 7.5 %, while PUTRA Light Railway Transit (LRT) users increase 3.9% in a week time. We believe more citizens will choose the public transportation in the long run. Therefore, government must seriously look into setting up a more integrated and user friendly transportation system to ease the burden of citizens on inflation and price hike.
Due to bureaucracy, the public transportation system is currently under jurisdiction of more than 10 government departments. We agreed the government’s move in setting up the Cabinet Committee on public transport to enable a standardize policy management unit and also to establishment a one-stop service centre to focus on all public transport activities. In the long run, the Government should increase the number of public transport and the frequency of the transportation services.
We also urge the government to ensure that all residential areas must be public transportation accessible. The government must make sure that convergence point for all public transportation must be user friendly and easy accessible. Once the public transportation system was improved and upgraded, the LRT and public bus system will be the first choice for citizens. As a result, Malaysian will be able to reduce their daily spending by using less cars and petrol.
Due to the uncertainties in the world economy, we also urge the government to relook into the annual budget and economy plan and find ways to address the impact on rising prices of raw materials and a possible food crisis. Maybank Aseambankers in a report recently estimated the government’s budget deficit will be ballooned to 5.9% of Gross Domestic Product (RM 41bil) from an earlier estimated deficit of 3.1% of GDP (20 billion). Chart 2 below shows that the federal income, expenditure and deficit.
Chart 2
(RM Billion) 2005 2006 2007
Federal government’s income 106.3 123.5 139.9
Oil related 31.0 45.5 51.1
Non oil related 75.3 78.0 88.8
Federal government’s expenditure 128.2 143.5 163.7
Total subsidy 12.5 12.1 15.0
National administrative spending 85.2 95.6 108.1
Development expenditure 30.5 35.8 40.6
Budget Deficit (21.9) (20.0) (23.8)
(Source: Ministry of Finance, Malaysia)
In order to avoid excessive borrowing from overseas to finance the budget deficit, we propose to the government to increase other non-oil related income and be more proactive in taxation enforcement. Therefore, we propose that the government continue to impose oil palm windfall tax, independent power producers windfall tax and also increasing the threshold of gambling tax. On the other hand, we also urge the Government to review the large-scale development projects. We suggest that the large-scale development projects to be scrapped or put under the initiative of Government Linked Companies (GLCs). The government's main target now will be fighting the inflation and setting up the national food security mechanism.
We also suggest that all subsidies must be phased out in a given time line. We found that the petrol, diesel and other subsidized products are often smuggled and sold at neighbouring countries to obtain windfall profits. Recently, there are a few news reports mentioned about 3,500 litres of fuel being smuggled to neighbouring countries and there are a few people arrested in the Malaysia-Thailand border for sugar and flour smuggling.
In order to put an end to these illegal activities, we suggest that the Domestic Trade and Consumer Affairs Ministry and border enforcement units to cooperate in executing their tasks. Marine Police should be enhanced to patrol the border frequently to tackle the smuggling activities too. Therefore, government department’s effort to increase efficiency will help to reduce wastage and losses caused by the smuggling activities.
The current worldwide economic downturn will be a major challenge to the government. The government will not turn a blind eye on helping the citizens to overcome the burden. We believe that the Government will have a strong political will to help the people. With the initiatives of the government, a series of anti-inflation mechanism has been launched and fine tuned in the coming budget 2009. With a strong support from the citizens, the government will work on their very best effort to overcome every difficulty.
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