By ZAIDI ISHAM ISMAIL
IT is common practise for some countries around the world to give fuel subsidies to their respective people. Fuel subsidies are used as a tool to help alleviate the high cost of living.
Malaysia too is of no exception and fuel subsidies are chanelled to the people to help them ride over the tough times. But more often than not, subsidies are tools of manipulation to win the rakyat's hearts and also fish for votes.
But now that global crude oil prices have dived to current levels of US$45 per barrel, maybe the government should give the fuel subsidy a rethink. The government should gradually reduce oil subsidies as oil prices are no longer at around US$100 per barrel like before.
The fuel subsidies can be used for other purposes such as building the nation to complement the economic stimulus projects. After all, the 2020 Budget was formulated on the premise that crude oil hovered at the US$60 per barrel level.
Due to the on-going price war between Russia and Saudi Arabia, the government has already lost millions in ringgit of oil revenue. Economists estimate that the government lost RM 300 million in revenue for every dollar drop in oil price.
Universiti Utara Malaysia Associate Professor of Economics Dr Irwan Shah Zainal Abidin said fuel subsidies should be targeted and help the needy, not the rich.
"If possible, with the drop in crude oil price, the government should look at new mechanisms to help the B40 more, like formulating a sort of quantitative easing measure.
Irwan said the move is not for the capitalists, but for the people on the street, especially the B40 group. Give them the money directly and it will help them face hardships and boost the economy as well.
It is a known fact, the B40 will spend the money distrubuted to them while the rich withhold spending reluctant to make investments.
The government should ponder on the fact that in some parts of the world, fuel subsidies are not relevant anymore. Fuel subsidies is not a favourite topic among global investors.
In financial markets, fund managers dislike investment destinations which has subsidies. Subsidies distort markets as it does not reflect the true prices of the black oil. Investors loathe subsidies as they give advantage to local companies and prevent international companies from competing on a level playing field.
More often than not, fuel subsidies were used as tools of manipulation to win the people's hearts during elections to fish for votes. This age old practise is not relevant anymore.
Thus the government should seriously consider rationalising fuel subsidies either by gradually lowering it or scrapping it altogether. - DagangNews.com
The writer is former NST Business Times assistant editor
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