Wednesday April 30, 2008 THESTAR
Fuel subsidy cut shouldn’t hurt public
COMMENT BY JAGDEV SINGH
THE restructuring of fuel subsidies looks inevitable after Domestic Trade and Consumer Affairs Minister Datuk Shahrir Samad announced that diesel would be the first fuel to see a rise in price at the pump.
He said the larger petrol subsidies would be dealt with next but stressed that subsidies would still be given for economic groups that need cheaper diesel.
The announcement marks a bold political step for the Government in trying to move away from subsidies and the high cost of maintaining them.
The Government said RM33bil is spent on fuel subsidies and RM20bil is in the form of forgone revenue to Petroliam Nasional Bhd from the sale of natural gas at the subsidised rate.
In tackling diesel subsidies first, the Government is dealing with a fuel group that between 2004 and 2006 has shown little growth in terms of consumption at petrol stations throughout the country.
Consumption of petrol, however, continues to grow strongly and petrol is sold at almost a 2:1 ratio against diesel in 2006, according to the ministry's website.
This makes it easier to deal with diesel subsidies first but the ramifications of higher-priced diesel can be wide.
Much of the transportation sector uses diesel to fuel the trucks and lorries that ferry goods throughout the country and when the cost of transportation goes up, the higher charges inescapably finds its way into the essential goods Malaysians consume.
Higher costs is something the public will loathe considering how much the ringgit is already being stretched with the prices of food escalating.
Furthermore, the rakyat must also be aware how the savings from lower subsidies are going to be used to their benefit.
While higher diesel prices will hit pockets of users, it is nothing like what higher petrol costs will do.
The argument that since petrol prices are cheap in Malaysia, we can raise them will ring hollow for many Malaysians who can bring up other statistics to show otherwise. The bottom line is that petrol in Malaysia is cheaper than in some countries and more expensive in others.
But whatever the debate on the positives and negatives for the cut in fuel subsidies is, the reduction or removal of fuel subsidies is like an extra tax and its ramifications on cost of goods and services would be far-ranging.
As a balance, and in the interest of fairness, there should be a corresponding decrease in other taxes and charges such as road taxes, toll charges, import duties on cars or even personal income taxes, so that a drop in fuel subsidies does not burden the public.
Also, while the Government still makes more money with every US dollar increase in the price of global oil prices, measures to instil a fuel saving culture should be escalated.