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Malaysian Food Blog, Travel, Diving & More

Tag / fuel

I’m sure most of you have read at least a dozen posts on how horrible it is that we are having an unheard of 40% price hike in retailed gasoline, it is unfair, bad, horrible, (insert vulgarity), etc. Fortunately, this blog is going to be talking about the reverse, for I actually welcome the price adjustment (and the eventual removal of subsidy). No, I don’t work for the government nor do I profit from the price hike in any way.

putting petrol in car

I am sure everyone is aware of the high price of crude oil as of late. Around four years ago, it was US $40, most people in the oil and gas industry thought it was too high and would never sustain. However, the price today is upwards of US $120. We shouldn’t expect to still be paying the same as four years ago now should we?

But wait, Malaysia is a net exporter when it comes to crude oil, at least until 2011 (according to some estimates). So shouldn’t Petronas be footing (nevermind that Petronas isn’t the only oil producer in this country) the subsidy, and let citizens reap in the rewards of our good fortune?

To me, the answer is both yes, and no.

Yes, for every dollar crude price increases, our country actually make a net profit of many million ringgit, the government and the oil producers get richer. We as the rakyat of this country, should benefit accordingly, and I do believe in this.

On the flip side, the subsidy mechanism in modern economy is a very poor way of controlling inflation as all it is doing is masking the true cost, much like sweeping dirt under the carpet. Plus, there is this whole cost of managing the subsidy itself, and making sure foreigners do not benefit from this flawed system.

Very simply put, cost of item A is RM 2.00, you want to be paying only RM 1.00 and have the government subsidies the other RM 1.00. What happen is that at the end, if you look at the country and the population as a whole, we are still paying RM 2.00 in total. But the management of the whole subsidy scheme might add in another RM 0.20’s worth of administration cost, smugglers’ profits, and a whole lot of other management headache.

The eventual removal of subsidy is a good thing, it will free up a lot of money for the government. RM13.7bil as quoted from this article. What I don’t exactly agree is the usage of the money to pay for other forms of subsidies (in food and so on). You’re removing a flawed mechanism A (as argued by the government) and pumping in money to other equally flawed mechanisms. I don’t see it as a very wise choice in the long run.

The RM 625 rebate is a good start, and that is of course, one way of sharing the good fortune to the people. However, I don’t think it is enough. There are many other issues to look into: toll, the inflated car price, the silly taxi licensing system, the sorry state of our public transports… Issues that the money saved from subsidy and the windfall in extra oil money should solve.

The real issue is, of course, can the current government manage the money wisely? I don’t think the protest is necessary, in the long run, following the market price should be a good thing.

Oh, before I forget, revising the price monthly isn’t going to be a wise move either. I don’t want to go through the traffic jam like last night once every month.