Subsidy-the Axe Man cometh!

Subsidy-the Axe Man cometh!

Government, by definition, is that organization which has a monopoly on the legitimate initiation of force within a geographic area. Inherently, it must use force and the threat of force to impose its rules on others, no matter how these rules were derived.

Why would I begin this essay with the above foreboding paragraph? Simply because I think, this whole lab about subsidy rationalisation as a means to lower our perennial deficits is a veiled threat of force to impose new rules on us.

Who among us in particular? On the most vulnerable group- the poor and needy is the answer.

PM Najib has to take a serious look on this subsidy issue. What is the most important legacy of his father, the 2nd PM? Championing the cause of the poor is the likeliest answer. He was minister in charge of rural development. It wasn’t a glamorous ministry, but development for the poor was close to his heart. He formed FELDA in the year Sakmongkol was born in 1956. To give land (wealth creating asset to the poor and disenfranchised.

Where is Idris Jala leading us? Cutting the ‘real subsidies’ going to the poor. Not exactly respecting the legacy of Tun Razak is it? But then, what does Idris "Al Dunlap’ Jala knows? We shall be coming out with what he did at MAS. Coming soon. Khawp khun, Danke, Nandri , Repoman!

Does he know Tun Razak at all? Don’t bother what the experts say. Ignore what Ramon Navaratnam says. Cut the government projects going to Sunway group and let’s see whether he can sing Jangli Jangli Kahay still. Is cutting subsidies on the top of the priority list of cutting government deficits? Reduce by half the bloated and quality challenged civil service would be a better option.

Let’s be clear who the recipients of government subsidies are. Government financial aid going to ordinary people is often really transfer payment, which is non compensatory. Meaning, the government gives them money without being compensated with anything from the recipients. Government financial aids going to businesses and industries, soft loans, etc- these are the real subsidies which should be compensatory.

The businesses and industries assisted by all sorts of subsidies ought to give us back in the form of better goods and services at a cheaper rate. IPPs get lots of subsidies, tax incentives and all that, including that kitchen sink, why aren’t we getting cheaper electricity tariffs? Why do I get that I- owe -them -a -living service from the under qualified civil servant?

Now, which one is the government going to take away?

Somebody must be bonkers if they believed that selling off assets and booking them in and accordingly showing profits, is ONE brilliant move to bring MAS into the black once again. And fuel hedging? Not exactly rocket science. The executive in charge of budget airline Air Asia knows fuel hedging is one of the ways to reduce cost and therefore increase operational profitability. So doing fuel hedging is not a NOVELTY nor a big deal. If Jala who comes from Shell doesn’t dabble in something he is familiar with, then maybe he should return to Sarawak to plant Bario rice.

The record at MAS by this minister- achieved by the above methods cannot be taken to impute extraordinary prowess at turning around things. We think he can do the same with our deficits by way of attacking subsidies which he fancies as the jugular? Nah- I don’t think so.

So, the government has incurred deficits all the time. Is going after subsidies or more correctly, going after transfer payments (welfare, subsidies on food, diesel, sugar, and education) is the better line of attack to reduce our deficits?

What about wasteful spending?

The government has just owned up to the gravity of our deficits, we going bankrupt and all that yet at the same, we hear this shrill voice from Johor, insisting the crooked bridge must be built. What is so special about building this crooked bridge and must it be crooked? Also, didn’t we hear just last week how everyone was singing praises at Malaysia being in the most competitive list? How do you reconcile this and the doomsday warning given by this Nostradamus from the land of the Hornbill?

We must be careful when we talk about subsidy? How much are pure subsidies and how much is transfer income? By treating it as one homogenous economic element, Jala is going to punish those who receive transfer incomes with those who receive subsidies. Differentiate the two. I am sure; this ability to differentiate these two wasn’t taught at Shell.

Transfers which are straight income supplements need to be distinguished from subsidies. An unconditional transfer to an individual would augment his income and would be distributed over the entire range of his expenditures.

A subsidy however refers to a specific good, the relative price of which has been lowered because of the subsidy with a view to changing the consumption/ allocation decisions in favour of the subsidised goods. Even when subsidy is hundred percent, i.e. the good is supplied free of cost, it should be distinguished from an income-transfer (of an equivalent amount) which need not be spent exclusively on the subsidised good.

I can’t put it any simpler- but then I am talking to the former boss of MAS and a former exec of Shell.

Transfers may be preferred to subsidies on the ground that any given expenditure of State funds will increase welfare more if it is given as an income-transfer rather than via subsidising the price of some commodities, and transfer payments can be better targeted at a specific income groups as compared to free or subsidised goods.

But the axe man came and bundled everything as subsidies. Subsidies in the form of soft loans, financial aid to IPPS-these ought to be removed immediately. But subsidies going to the poor? Only if PM Najib has a death wish. Anyone watches Charles Bronson movies anymore?

What is the primary objective of the government in saying that in 19 years, this country will go bankrupt? The deficit is so big that it has reached almost half of our GDP? Is this an overnight phenomenon? We didn’t get to the stage of huge public debt overnight. It’s the result of years of negligent and undisciplined spending like nobody’s business.

The thing is, this yawning gap occurred under the watch of the BN government. In that sense this huge public debt is the outcome of the economic policies of the BN government. This Idris Jala maybe a loose cannon after all. I hope PM Najib must now realize that he needs to place people schooled in politics. Sure, in Shell they teach you to be audacious and the executive is always eager to make slides and PowerPoint presentations with much fanfare so that his immediate boss or the departmental bosses notice you. You operate on a different basis.

In politics, what you do, notwithstanding the brouhaha, have political ramifications. Failure is a lonely orphan, success has got many fathers. Right now, Idris Jala may be feeling orphaned.

What proportion do subsidy payments make up in the whole deficit budget?

You see- the problem with subsidies- it’s the easiest economic parameter to attack. Subsidies are received by corporations and businesses and the most vulnerable groups in society- the poor and needy. Corporations and businesses especially those who have received favorable loan terms, have strong and vociferous representation. Navaratnam can speak on behalf of big business, chief economists can speak on behalf of the banks etc.

But what about the vulnerable groups? The poor and needy? Who represent them? Maybe Walla. Maybe Sakmongkol. Maybe Wenger. Maybe Donplaypuks.

When I was young, I remember the government of the day at that time ran austerity campaigns. They didn’t cut back on subsides to the poor. Of course at that time, government did not give out dirt cheap loans to selected businesses and businessmen nor spent lavishly on unnecessary things. They took the road of persuading the people to go on austerity drive. Government stopped recruiting workers. The civil service remained manageable unlike now where it has reached 1.2 million in number. Practically 1 out of 25 Malaysian is a government servant. One public servant servicing 25 people would have given us sterling service. But what we get is arrogant and officious service blind to the fact, they, the majority of civil servants live off our money.

What is the primary objective of cutting subsidies- that portion of government expenditure that goes to selected sectors and recipients? If the subsidies go to selected producers of goods and services- what they offer us should be cheaper. Recipients who receive subsidies without offering the economy anything back, will experience increase in disposable income and spend it accordingly over a broad range of expenditure.

There are 2 groups who receive subsides. Producers of goods and services- IPPs, Infrastructure contractors, businesses given almost interest free loans from the government. This is one group. The other group include the recipients of what is more correctly termed as transfer incomes.

So when Idris Jala was telling is that what the government spent last year is equivalent to RM 12,900 per head, I am not sure whether this is a quantum divided by the whole population of Malaysia or recipients of subsidies only.

Where will the cuts come from? My main objection to this subsidy rationalization is, the cuts are directed at the most vulnerable group of all- the poor and low income earners who are poorly represented in any discussions involving them. Who represented the poor on the panel discussion? CAP? The man from Khazanah? Tony Pua? Idris Jala? The Royal blood?

source: SAKMONGKOL AK47: Subsidy-the Axe Man cometh!