Chances are fuel subsidies may not be reinstated
Published on: Thursday, November 27, 2014
PETALING JAYA: Economists and analysts believe the surprise announcement of the removal of fuel subsidies last Friday couldmean the end of petrol and diesel subsidies as we know it, and do not expect amuch- debatedmulti-tiered system to materialise."The government certainly took people by surprise. Most people were expecting themulti-tiered systembecause the government said that theyweremulling it. It looks like the government decided that the cost of monitoring and implementing themulti-tiered system is not worth it," Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said. With Friday's announcement, Kenanga Research economist Wan Suhaimi Saidi believes that themulti-tiered system for fuel subsidies will no longer be needed.
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"If they remove everything (subsidies), I don't think it (themulti-tiered system) is going to happen. I think once the government removes subsidies, they won't go back again," he opined. Last Friday, Domestic Trade, Cooperatives and ConsumerismMinister Datuk Seri HasanMalek announced at a hastily called press conference that all subsidies for RON95 petrol and diesel will cease effective Dec 1, 2014. Pong does not expect the government to implement themulti-tiered system even if global oil prices increase as the systemhas raisedmore questions than answers. "There have been a lot of questions on how to implement themulti-tiered system. There have been all kinds of complaints. It is too complicated, the cost of monitoring and implementing is too high, especially in preventing abuses; there are toomany loopholes," he said. Pong opined that it was an opportune time to remove subsidies with global oil prices at a low, minimising the impact on consumers at the pump.
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"In the short term, there won't be any impact but, in the long term, it introduces more volatility in the cost of goods and production. Businesses will need to provide some cushion or buffer in their pricing. "Even if the cost does not actually increase, businesses would impute in a higher cost due to the uncertainty of global oil pricemovement. It is amoving target," he said.
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Pong, who is not a fan of the current fuel subsidy scheme, said the subsidies have been too open to abuse and the government cannot afford a blanket subsidy. "We've enjoyed this period of privilege that other countries don't have but I have always been against it because it is difficult to sustain it and is too expensive for the government as the budget is stretched. It also distorts pricing," he said. Affin Investment Bank Bhd chief economist Alan Tan said the removal of fuel subsidies should be viewed positively fromamacro perspective as it will address the country's fiscal deficit position. "Malaysia's fiscal deficit is in negative territory due to the fuel subsidy. Now the government has decided tomanage it and improve the fiscal deficit position. The savings could be channelled towards building infrastructure and public amenities. This should be viewed positively," he toldSunBiz. Tan said any impact on the cost of business would be due to themovement of global oil prices, which are not expected to rise sharply in the near termas there is ample supply fromSaudi Arabia and shale gas in the US. "There are no sudden spikes expected in global oil prices," he said, adding that the government is expected to provide further social assistance, such as BR1M (1Malaysia People's Aid), to help the needy following the removal of fuel subsidies. Stay up-to-date by following Daily Express’s Telegram channel.
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