Subsidies : “the time has come”

By Syed Akbar Ali

Updated (in blue)



Dato Seri Idris Jala was kind and brave enough to meet the Bloggers on Wednesday June 2nd for over three hours. I say brave because some other Ministers are shying away from talking to the Bloggers. I cant blame them because the Bloggers frequently serve piping hot stuff about their Ministries.





Dato Idris Jala was well armed with his facts and figures.



The session with Dato Idris was quite blunt – the Minister held up quite well but the Bloggers did prevail on a few points.



The first thing Idris clarified was his statement that the Government would go bankrupt in 2019 IF it continued borrowing as it has over the past 10 years (12% per annum) and if the GDP also grew at the historical 10 year rate (3% - 4%). And ceteris paribus meaning everything else remaining unchanged. This is a basic ‘economists’ assumption.



The GDP is now at RM600 billion. The Government debt is about half that amount. Growing the debt at 12% per annum would take the Government debt to over RM1.0 trillion by 2019. But growing the GDP by say 3% or 4% may not match the Government debt by 2019.



The danger that Idris is pointing out is that when a Government’s debt exceeds the GDP of the country’s economy, then the taxes generated by a GDP of that size will not be able to pay the interest on the Government debt which exceeds the GDP.



Say you earn RM5000 a month, but you borrow RM8000 a month. You will be in trouble. Firstly you may not even be able to pay the interest on the RM8000 a month debt. Then most certainly you will not be able to pay the principle amount of your debt.



This is what Idris was trying to point out. The problem is that the Government (despite the presence of PR specialists at the briefing by Idris) has a very poor communications team.



Even Ministers have problem understanding other Ministers. Adek Awang – another one of those Deputy Ministers who is shy of meeting Bloggers - made a statement that the Government will not go bankrupt despite what Idris Jala had said.



“KOTA BAHARU: Malaysia will not go bankrupt in 2019 even if a subsidy totalling RM74bil a year is continued, said Deputy Finance Minister, Senator Datuk Dr Awang Adek Hussein.


I think here Dato Seri Idris Jala is suffering an over reliance on his consultants. He has to touch base with his fellow Cabinet members first.



There is much rational for removing the subsidies, which according to Idris totals RM74 Billion a year. This figure is also disputed. Some folks say that a more realistic figure is closer to RM30.0 billion a year. But Idris’ main concern is that the Government needs to save its neck because there is not enough money available to the Government to pay for everything.



My view is that we should try to remove all subsidies because they distort the market and make us blind to the real cost of just existing in this world. The distortion created by lifelong subsidies will eventually come home to roost on us all. Firstly they create non competitve behaviour. Subsidies are a ‘silent killer’ like diabetes because until generations pass, we will not know how much initiative and competitive behaviour has been killed off by access to easy subsidies.



But how you remove the subsidies, after over 40 years of their implementation is very important. We cannot have the ‘cold turkey’ treatment. Yet we do need a deliberate but well planned exit mechanism.



I have mentioned earlier that one method would be to remove the least essential and non essential subsidies first (religious spending) and insist on open tender and open bidding on all Government projects. We must make a point on this on any Government project worth more than RM500,000.



Subsidies for food and fuel also have to go but they must be scheduled properly. The gradual removal of the fuel subsidy (15 sen rise in Ron 95 fuel every six months) is a good idea. I floated it on my Blog first – ingat tak?



We need some intelligent thinking about flour, cooking oil and sugar too. Even without Minister of Domestic Trade Ismail Sabri Yaakob’s brain dead interference into the system, the traders will start biting their finger nails.



These people run factories and warehouses. They have workers to pay, lease payments to the banks and have to order raw materials months in advance. All this costs lots of money. But the Government has not given them any clear indications when the subsidies will be removed. The Government has also not said when (or if) the price controls on sugar, cooking oil and flour will be lifted.



So imagine a situation – the Government removes the subsidies on flour. This means the flour millers and flour traders immediately suffer higher costs. But sleepy headed Sabri the Minister of Domestic Trade (he was appointed during the time of the corrupt Slumberjack and his SIL) “did not know” or just plain “forgets” to also remove the price controls on flour – it would mean the flour millers and flour traders will go bust. They will be caught between rising flour costs (post-subsidy) but no increase in selling price (Sabri forgets to remove the price controls in time).



This is the reason why the General Sundry Merchants association has said that they will NOT sell cooking oil, flour and sugar after June 15th.



There is just no complete thinking by the Government about all the actions, reactions, repercussions and other things that will impact the market if the subsidies are removed, the price controls are removed (or are not removed). There are many dots that need to be connected. The Government is not seeing the whole picture. And Ministers like Sabri do not seem to know head or tail about what they are saying.



Idris Jala said that 2,650 Government tenders that have been awarded can be viewed on the Treasury’s website. This is a start. But we really need transparency on the award of all Government tenders, especially big ticket items.



The Minister of Defence has just announced in Singapore that the Government will be spending RM2.2 Billion to buy three specialised ships for the Navy. Was this on Open Tender? Is this posted on the Treasury website? Who won the award and on what basis? How much commission was paid? We know that ALL defense contracts have commission payable. It is market practise. Put it up. Be transparent.



The other question that needs to be addressed is what is the Government going to do with all the money they are going to save from not paying any more subsidies? If Idris Jala can save RM74 billion a year, that adds up to RM666 Billion by 2019.



Even if the actual out of pocket savings is only RM30 billion a year (a more realistic figure) that is still RM270 billion by 2019. What is the Government going to do with all that money they are saving?



We certainly do not want to see Ministers getting richer every year or their families getting fabulously wealthy every year too. That crap has to stop yesterday.



Here is something else that was brought up by BigDog.



“AIRASIA Bhd has been granted a further five year extension of an investment allowance, which entitles it to claim an income tax exemption of 60 per cent on qualifying capital expenditure. This must be incurred between July 1 2010 and June 30 2014".



So Air Asia is getting a subsidy – for another five years. But Idris just said that subsidies are going to be removed. Macam mana pula ini ? And just how much profit does Air Asia make - you may be wondering ? Well here it is :



"AirAsia Sees Higher Q1 Pre-Tax Profit Of RM256 Million

KUALA LUMPUR, May 31 (Bernama) -- AirAsia Bhd recorded a higher pre-tax profit of RM256.187 million for the first quarter ended March 31, 2010, compared with RM124.118 million in the same period last year."



RM256 Million in the first quarter alone ?? Wow ! ! There are four quarters in one year. So RM256 million x 4 = RM1.024 BILLION profit per year. And this corporate giant where the SIL and other cronies are shareholders is going to get subsidised using money that is being taken away from the rakyat? Banyak cantik.



Does Air Asia still owe hundreds of millions of Ringgit to Petronas (for fuel supply) and to Malaysian Airports Bhd (for airport handling services) ? That is taxpayer's money too.



And isnt it also true that cronies from the regime of Slumberjack have made hundreds of millions in commission payments for all those Airbus jets that Air Asia ordered ?



You know - some of those Airbuses which subsequently had to be leased out to other airlines because Air Asia did not have enough routes to fly them? Why buy so many Airbus jets in the first place? Surely if I was paid tens of millions of Ringgit as “commission” for influencing the purchase of Airbus, then I too can build a house on a cliff overlooking the Indian Ocean in Bali. It is not a difficult thing to do isnt it?



But coming to the point : the Government is removing subsidies from the rakyat and giving it to Air Asia as well? Banyak cantik.



I did tell Dato Seri Idris Jala that while it is well and good that subsidies are removed (I believe in the free market so I fully support the idea of eventually removing all subsidies) what does the ordinary man in the street get in return?



If subsidies are removed the price of sugar will go up, fuel goes up, flour goes up, the Government saves RM74 billion (Idris’ figure) and even Air Asia gets millions of Ringgit in tax subsidy over the next five years – but what does the ordinary man in the street get in return? Kita dapat apa?



Well there are laws in place to protect ‘way past shelf life’ monopolies. One example is Astro which is protected by a 15 year old law that Malaysians cannot own satellite dishes of more than 36 inches. This law was passed to give Ananda Krishnan a chance to shoot a rocket into the sky (Measat) and to set up satellite TV. It cost a lot of money for Ananda to do that and Ananda asked for some assurances that his investments would survive. So the Law was passed to give Ananda Krishnan a monopoly on satellite TV.



But now 15 years have gone by. The Government says ”the time has come to remove the subsidies” because we cannot go on subsidising everything anymore. Very good. I can agree with that.



The catch phrase is ‘the time has come.’ Very good. Saya boleh terima. But isnt it also “the time has come” to remove these monopolies which are protected by Law? Here you are removing subsidies from the rakyat yet you are paying millions Ringgit in subsidy to Air Asia and prolonging Ananda Krishnan’s satellite monopoly by Law ! ! How does the Government explain this little anomaly? This irritating little contradiction?



So as a first step, please stop paying any more subsidies to Air Asia. Tell them to pay up all their hutang to Petronas and MAB (which are GLCs owned by the taxpayer – the rakyat, you and me).



Then repeal the Law that prevents Malysians from owning their own satellite dish of any size. There was an argument (valid 15 years ago) that people can watch porno through their satellite dishes. Thats why the Government had to ban satellite dishes above 36 inches.



I say kawan, schoolchildren can now watch porno on their handphones – I Phone, Blackberry, Nokia plus also all the porn video coming out of the Police Stations. Even taxi drivers are producing their own porn using handphones. And the Internet is full of the stuff. So please dont use this old argument anymore.



The we also have the AP disease. There are APs to import Panadol, AP’s to import medicines, APs to import cigars, APs to import cars, motorcycles and a million other products.



There are also Government granted monopolies over rubbish collection (Alam Flora), monopoly over car inspections (Puspakom), monopoly over weighing machines calibration (Metrod), for servicing Government vehicles (Spanco), over toll highways (Plus, Asas Serba ?? etc).



The country’s economy is just one big AP, monopoly and license mafia that only increases the cost to the consumer. We pay among the highest prices for cars in the world. Why? Because some Tan Sri makes buta money holding the AP to import cars. Then there are import duties which protect an in increasingly "unprotectable" Proton.



A young graduate who may earn RM2500 a month has to pay RM650 a month in instalment just for a Perodua Myvi. That is 25% of his salary. Why? Because we have APs that benefit Tan Sris and Datos and import duties that protect Proton. Sampai bila kita nak jadi bodoh lembu macam ini? Yang paling ramai beli Myvi orang Melayu juga. The real value of the car and the monthly instalment should be much lower than that.



If the Government says “the time has come” to remove the subsidies – fine. Great. Saya sokong 100%.



But “the time has also come” to remove all these crippling monopolies, APs and licenses which only benefit the Tan Sris, the Datos, the YBs, the corrupt among the Ministers and the cronies. They do not benefit the general public.



And here is a point that sadly Dato Idris Jala did not understand. I told him that all this money that the Government is spending or going to save from removing subsidies did not fall from the sky. This is all taxpayers funds, duit rakyat. Idris disagreed. He said some of it is borrowed by the Government from banks and stuff. Fine, but eventually the Government will repay all its borrowings from taxes and duties collected from the rakyat. All Government money is always taxpayers money.



But even aside from that, it is we the rakyat who are paying for all these APs, import duties and licenses that benefit only a few. When a young graduate pays RM650 monthly instalment for a Myvi, he is paying using his blood sweat and tears so that some Tan Sri or Dato or YB or corrupt Minister who holds the AP can make money. The ordinary man in the street is subsidising the rich Tan Sri and the rich Dato.



And here is the real cancer : the APs. monopolies, licenses etc do not add any value to the economy of the country, to the average bumiputra or to you and me. It only enriches just a few.



In conclusion : the Government really does not know what it is saying. The only consolation perhaps is that the Opposition dunggus are far worse. So we dont want to change the Government but we certainly want the Government to change how it does business. If the Government does not change, then the Government will indeed be changed.



I would like people to understand that no matter who we are (Government, Opposition, UMNO, PKR, Pakatan, BN or whoever) these are real issues that really affect all our people. We have to arm ourselves with facts and figures and start to exert real pressure to bring about real useful change in the system.



The winner (especially at the General Elections) will be whoever is the one who is brave enough to do all this first.



There is no doubt about NOT DOING these changes. Meaning these things MUST be done. These changes must be done. It only matters who does it first. I hope that the present Government will be the one who will bravely undertake these changes.