By Samantha Joseph
The government finally moved to rationalise subsidies just after National Day by announcing a rise in diesel and RON95 prices by 20 sen to RM2 and RM2.10 respectively along with a rise in RON97 that would bring it to RM2.87 per litre.
Analysts have welcomed this initiative as a prudent step in balancing the books and working toward reducing Malaysia’s debt to 4% by the end of the year.
RAM Holdings chief economist Yeah Kim Leng noted that in terms of direct impact on the cost of food production, the increase in fuel price should not result in too high an uptick.
“The rise in general of cost pressure would result in an increase of 1%,” he said, adding that it would not be justifiable if most products and services were to increase by more than that.
On the other hand, president of the Johor Lorry Operators’ Association Anthony Tan said that an increase of up to 15% by the lorry operators would still be a reasonable rate, depending on the company.
“Different companies will have different costing structures,” Tan pointed out. “Some may have a higher volume and revenue, resulting in a marginal increase in prices. At the end of the day, around 8% to 12% of costs is transferred to the customer.”
Tan added that for the past few years, lorry operators had been absorbing increasing costs that included labour costs that went up in tandem with inflation and living costs and tire prices that were subject to rubber and crude oil prices. The added pressure of an increased diesel hike will affect costing formulas and operators will have to up their prices to remain competitive.
Anthony Dass
AmBank group chief economist Anthony Dass agrees that transportation costs will go up and pointed out that there would be pass-through effects from the increased transportation costs into economic development activities like construction materials.
“We expect the hike in fuel prices will add pressure on the prices of consumer goods and services,” said Dass of the expected consumer impact from absorbing the rise of the fuel prices. “Estimates show those within the income bracket of RM700 to RM5,000 spend about 15% of their total monthly income on transportation.
With the erosion in their disposable income, we can expect a drop in their expenditure on items like entertainment and leisure. Our assessment showed for every 1% hike in fuel prices, it will reduce consumer spending by about 0.05%.”
There have been calls for the rakyat to ‘beware’ of the fuel hikes, as they merely represent the beginning of many new expenses that the government is handing down to the people, to the detriment of the people. On the other hand, you have government representatives and authorities claiming that the impact of the subsidy rationalisations on the people will be minimal.
The 20 sen increase on diesel and petrol has been derided as a sham by opposition strategist Rafizi Ramli, who claimed that ‘the poor would be victimised first’ and that the step ‘would not solve Malaysia’s economic woes and is not fair to the rakyat’.
DAP MP Liew Chin Tong took the conclusion of detriment to the rakyat a step further by stating that the fuel hike would increase the number of road deaths due to the fact that more people would switch from cars to bikes to deal with the extra expense.
Mahathir Mohamad
Despite the fact that Domestic Trade, Cooperatives and Consumerism Minister Hasan Malek has said that the 20 sen hike will result in a paltry and extremely specific 0.1% increase in food prices, and Dr Mahathir says a 5% hike at most is to be expected, the rakyat are apprehensive for the worst.
Others lament the rationalising of subsidies, citing the fact that as a fuel producer, Malaysia should not have to increase its prices.
The gradual removal of subsidies is not a condition unique to Malaysia alone. Our neighbour Indonesia is undergoing the same difficult process to ensure that their budget deficit does not go above 3%. Malaysia is currently running on a deficit of 4.5%, with hopes to bring it down to 4% by year-end.
Like Malaysia, Indonesia is an oil producing nation, but it is a net importer of petroleum, which forces subsidies to bear most of the brunt of an increased price in imported fuel.
Yeah Kim Leng
“It is a very short-term view,” Yeah said of the comments disparaging the rationalisation as an increase in fuel price, seen to be an anomaly in an oil-producing nation. In actual fact, fuel prices remain the same, it is only the subsidies that are being reduced, and thus the financial burden to the government.
“With subsidies, we are paying for long-term pain. If we continue to subsidise oil prices, it will encourage the consumption of non-renewable resources. And if oil and gas consumption continues at the current rate, Malaysia will end up as a net importer that much faster, and as a result we really will have to pay the price of more expensive fuel,” Yeah pointed out.
With the additional expenditure BR1M handouts and a focus on reducing government debt in the most public way possible, the rakyat should be ready to tighten their belts and expect more steps that will impact their disposable income. As Yeah noted, it is necessary to take a long-term view of the situation.
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