Saturday, May 29, 2010

Culture of Subsidies

Malaysians have long been accustomed to the culture of subsidies. Many goods, especially those categorized as "essential goods" are priced at lower-then-actual-market-rates simply because of government's price intervention. For example, the price of petrol in Malaysia is among the cheapest in the region, even when compared to other developing nations.

The Malaysian government subsidizes the cost by absorbing a portion of what would have been the actual market price of those goods in the hope of lessening the burden of poor households. The policy is costing the government billions of Ringgit each year.

However, in recent times the government is apparently trying to gradually end the culture of subsidies in Malaysia. I think it's possible that the idea came quite accidentally. During the height of the escalating petroleum prices, the government had no choice but to adjust the fuel prices in Malaysia. It used to subsidize heavily on petrol. By a mere adjustment of 20 sen to 30 sen, the government was able to save billions of Ringgit! Nevertheless, as the prices of petroleum continued to escalate, the government had since increased fuel prices quite substantially.

It's possible that after the experience with the fuel price increase, the government realised that they could actually save so much more if it could somehow withdraw the subsidies for all the other "essential goods" too.

But to do so immediately would have been politically fatal. Malaysians are so used to the culture of subsidies, it would be very difficult to change that mindset. Therefore, if the government wanted to withdraw any subsidy at all, it must have a very good reason for it!

Although Malaysians have long been consuming a high amount of sugar, the government was only recently taking steps to address the problem. Accordingly, the price of sugar has been adjusted by 20 sen, reportedly in the hope that Malaysians will now consume a bit lesser sugar in their diets. Apart from saving billions of Ringgit from the withdrawals of subsidies, the government can also reduce rampant smuggling of these "cheap" goods to neighbouring countries. I have not seen any drastic drop in sugar consumption in the population, but maybe I have not seen enough.

And then now a bolder plan has been formulated in the overall Ringgit-saving drive by setting a time frame of 5 years to remove the subsidies. I would expect that the many great thinkers in the government are hard at work to think of very good excuses for the removal of subsidies.

Personally, I am OK with the withdrawal of subsidies for the so-called "essential goods", except that I wonder if the government has conducted any study to determine whether a typical household income can afford the higher prices. And if they are plans to raise the incomes of the average Malaysian household, would it be sufficient to balance the increase in prices of goods. Those of us who're earning reasonably well wouldn't be substantially affected by the price adjustments, but when a household is earning barely enough, price increases can be devastating.

Apart from withdrawal of subsidies, the government is going a step further. I can't help but notice that the government is also trying to find ways to tax the people as much as possible to earn extra revenues. And so, for example, on the excuse of regulating credit cards in Malaysia, there is now a RM50 levy for each card. That alone is a lot of revenue for the government.

More recently, the government is also planning to increase the levy for foreign labour. Yet more earnings for the gevernment. Apparently, this was to discourage hiring of foreign labour; so that employers would tap into the local resources first. I think that is a good idea, except that not very many of our local people are keen to work as housemaids or at the construction sites for the kind of salaries we're paying the foreigners. If employers have to increase the salaries of their workers, then they will inevitably have to pass on the additional cost to the consumers.

Anyway, I can imagine the hundreds of billions of Ringgit the government will be able to save and/or earn from the withdrawal of subsidies and imposing levies. I am curious to know what the government intends to do with all those extra cash, because that's a hell lot of money we're talking about.

It is quite possible that more schools and universities, hospitals and roads will be constructed; poverty eradication programmes will be formulated to educate the hardcore poor; some other developments to create jobs for Malaysians etc. Yes, those are things we all look forward to.

However, a likelier scenario is that we will be building a couple more tallest buildings in the world; send several more tourists into space at RM100M per pax; enter into bridge-construction contracts, only to cancel the plan later, thus incurring a RM100M compensation for the other party; and a whole bunch of mind-boggling wastage and mismanagement you can possibly think of!




i think bcoz msia is in big trouble now. so much in debts. within 1 years, msia has issued 3 bonds to accumulate money. i agree that they stop subsidising.

Sarah Elizabeth said...

I wonder how difficult it will be for me to find a job in Malaysia if the government itself is discouraging hiring of foreign labor.. eesh.. I heard it is very difficult for foreigners to find work...

Socrates29 said...

My understanding of the proposed curb on hiring of foreign labour is mainly on those during general labour work in the construction,food and timber industries.

If you are married and your husband is a Malaysian, you may be able to find work if you have some specialized skills or qualifications (doctor,nurse,I.T.,university or college lecturer,actuarian,etc).

If your husband is not a Malaysian and you are not one either,it is a little bit more difficult but not impossible. Again your specialisation or academic qualifcations matter because if there is a suitable specilized vacancy which no Malaysian can be recruited to do the job,you can apply for it if you have the required academic qualifications and job experience.

If you are employed,you will need the necessary work permit approval from the Malaysian Immigration Authority.I am told that usually approval in such cases is subject to yearly approval and limited to a maximum 7 years which is appealable if your non-Malaysian husband is still working in Malaysia and your continued service and specialized skills are still required.
Hope this is of some help.

Sarah Elizabeth said...

Socrates, thanks for the info. Yes, my husband is a Malaysian citizen, and we plan to be in Malaysia for possibly a long time.. I'm thinking of applying to grad school at UM.. =) I think I may need a Masters degree in order to be noticed in Malaysia, since I am not a citizen.. I'm keeping my fingers crossed and hoping for some good luck!

Cornelius said...

Just arrived home from a 2-night fishing trip. Very exhausting trip, but quite fruitful!


Not too sure about "big trouble", but yes, I tend to agree that it does seem like the gov't is trying to raise money. If the gov't stops subsidising, the hardcore poor will be the ones to suffer the most. The gov't needs to be very careful about withdrawing subsidies.


I think Socrates29 is correct. The control of foreign labour is basically to try to protect Malaysians from invasion of foreign labours. But now the gov't is also trying to raise money by taxing the cheap labour market which even Malaysians are not very keen to do. It's a good excuse to raise money though.

I think if you are gonna settle down in KL, you should be able to find a job there, although it depends very much on your area of expertise.


Am curious to know what are your views about West Malaysians requiring special permits to reside in Sabah which is renewable annually, yet the IMM13 foreigners can remain here forever.

Socrates29 said...

I am surprised you asked for my views about West Malaysians needing annual workpasses to reside and work here and IMM 13 holders who seemed to be able to not only reside but to work here as well forever.

Though I am no politician, Dr Chong Eng Leong would have something more elaborate and plenty to say about this especially since this particular issue and that of dubious identity cards issued to foreigners are his favourite subject in the political arena.

First there is the 20 points to consider which Sabah and Sarawak agreed to before they joined the West Malaysian states and Singapore to form Malaysia.

Although the rights enshrined in the 20 points are being slowly eroded away,still the need for West Malaysians to have workpasses or social visit passes to stay and work here gives some form of protection to the Sabahans and Sarawakians in terms of jobs and business protection.

Can you envisage what would happened if Sabah and Sarawak open their doors to those from West Malaysia to come here and work,do business without the need for them to apply for a work permit or social business visit pass? They would flood the job market and compete with the locals even for jobs as clerks,office boys, sales personnel,drivers,etc. or set up business as private doctors, lawyers, pharmacists, contractors,etc, to the detriment of the locals who will have to compete with them.

We are all too familiar with the issue of lawyers from West Malaysia being unable to represent their client, practice or appear in our local courts even for a day unless they have a work permit enabling them to work here,I was told.

As for the IMM.13 holders,it is only a matter of time over the years, they and their families are more or less going to be legalized and therefore be able to stay,vote and work here forever since our politicians dictate that they need them to fuel up the voting population.

I think we can talk till the cows come home and yet nothing will ever be done to resolve the IMM 13 issue.It is not because of the lack of politcal will by those sitting in power but something else which meets more than the eye.

Being a non-Malaysian,if you intends to pursue further or higher education in Malaysia,I think you will need to apply for a student pass.I am not sure whether this requirement is still required but maybe you can check with the Immigration Authorities or university where you intend to enrol with.

Cornelius said...


You have the popular view of the Sabahans. I have a slightly different view.

Firstly, I doubt that the West Malaysians are very keen to venture out to the east to fight for jobs in the likes of clerks, office boys and drivers. The kind of money they can earn from these jobs is just not attractive enough. If anything, I see people in the likes of professionals including doctors, lawyers, engineers etc would be keen to come over to try their luck. So as far as competition is concerned, I believe we can safely assumed that the lower-income jobs are somewhat "protected" without government intervention.

Secondly, we can easily set quotas for professionals, for example, where Sabah is in short-supply of doctors, engineers etc, why not allow the professionals from the west come in and practise here?

Thirdly, that so-called annual work permit is basically a kind of formality which is more of a nuisance rather than anything else. West Malaysians can almost come in and get their work permits approved very easily, but for the hassle of the annual renewals which are almost automatic anyway! Whereas the IMM13s are issued once and hey presto! they're as good as Sabahans!

Finally, I feel that if we need to choose between the West Malaysians and the illegal foreigners, I would opt for the former anytime of the day. For I am more favourable to the quality of the population, not so much to the kind of uneducated people who are so prone to become criminals, thus giving us such an unhealthy environment to live in. We can still control the inflow of labour. After all, what control do we really have right now anyway?

Socrates29 said...

It is true,we should go for quality but it is unfortunately sad to note that people with political motives and agendas prefer the quantity aspect instead to boost up the voting population.

Ironically over here in Sabah we read so much about the many reports of our youths going over to West Malaysia to seek for better work opportunities unsuccessfully and eventually ended up stranded there.

Cornelius said...

Ah! that is a different matter all together, Socrates29!

There are of course some gullible Sabahans who're duped into promises of high-paying jobs in the west. They had to raise a bit of money to pay the "agents"; then fly over to the west and then ended up in miserable jobs. Some women ended up in the flesh trade. And yes, some of them ended up stranded in the west.