Subsidies Rationalization, What will Happen?

Malaysia is one of the most subsidised nations in the world. Its total subsidy of RM74 billion in 2009 is equivalent to RM12,900 per household or 4.6 per cent of GDP even higher than Indonesia (2.7 per cent) & Philippines (0.2 per cent).

Due to high subsidies, Malaysia’s fiscal deficit stood at 7% of GDP or RM42 billion in 2009. Malaysia will be bankrupt by 2019 as total debt would soar to a RM1.16 trillion if we do not cut subsidies now.

Below are the breakdown of 2009 subsidies,

• RM 30.8 billion – Primary, secondary, higher education and scholarships.
• RM 22.9 billion – Medical services, petrol, toll, foodstuff (paddy, sugar, cooking oil)
• RM 18.0 billion – Gas subsidy for power and non-power sector, prefential interest rate.
• RM 2.3 billion – Welfare aid for poor, farmers, fisherman and disable.

Prime Minister’s Department’s Performance Management and Delivery Unit (Pemandu) was giving the task to come out with the plan to rationalise the country’s subsidy scheme.

A nationwide SMS survey conducted by Pemandu found 61% of respondents agreeing to the subsidy rationalisation initiative, with the majority preferring for it to be phased out over three to five years.

Below are some of the recommendations on subsidies that are to be removed.

• Fuel price be increased in mid-2010 by 10 to 15 sen, followed by 10 sen increase every six months until it reaches market price.
• Reduction of gas subsidy, resulting in an increase in electricity tariffs. However, most households will not be affected as the move will only affect those consuming more than 200kWh.
• Toll rates to increase in mid-2010 as per concession agreement except for highways without alternative toll-free routes.
• Outpatient treatment at public hospitals to be increased from RM1 to RM3. In-patient treatment will also increase, depending on the wards (Class One, Two or Three), from between RM3 and RM80, to between RM6 to RM160.
• Text book loan scheme and tuition subsidy aid to be abolished. Students will also have to pay for public examination fees.
• Foreign students will pay full fees at public universities.
• Local undergraduates and postgraduates to pay more in student fees, ranging from RM300 to RM800.
• Study loans under the National Higher Education Corp Fund (PTPN) scheme would be tweaked to cover study fees only.

The Government’s plan to rationalise the country’s subsidy scheme but it will also mean a further rise in prices of goods and services. Malaysia’s consumer price index (CPI) will likely grow 4% between 2011 and 2012, and 3% post-2013.

What do you think on the effect to our life if all of these rationalization implemented?