As a concerned citizen who has watched our budget deficit grow by leaps and bounds in tandem with our growing subsidy bill, I would like to add my two sen’s worth on the failure of the Malaysian government to stop spending on fuel subsidies.

Fuel subsidies make up a large part of our daily life. We run our cars on subsidised petrol. We cook our food using subsidised gas. We turn on our aircons with subsidised electricity. How much longer can we live on subsidised fuel?

The higher the price of oil, the higher the cost of subsidies. The price of crude oil is today more than double the price it was six years ago and is bound to increase in the future.

With the price of crude oil increasing due to increasing costs involved in extracting oil from increasingly remote areas, keeping prices artificially low for everybody is creating a situation where spending on subsidies is spiraling out of control.

Additionally, subsidies may lead to lower prices but also lead to wastage and inefficiencies. Cheaper fuel and power only perpetuates inefficiencies, further weakening Malaysia’s competitiveness.

Cheaper fuel also increases our dependence on non-renewable resources and dampens the interest among the industries to invest in and employ energy-efficient technologies.

The increase in spending on subsidies is creating a larger and larger fiscal deficit which will ultimately hurt the Malaysian economy. This is not a healthy trend and is unsustainable over the long term.

The deficit constraints the ability of the government to use fiscal policy as a tool to stimulate the economy during an economic slowdown. As the government strives to keep the economic momentum going especially during these tough times, it can ill afford to spend on maintaining low petrol prices, literally burning money away.

There must be a conscious effort to consume less petrol and this can only be done by taxing the unnecessary use of petrol. Only then can the petrol subsidy bill be reduced.

The money saved could be then channeled into putting a halt to our growing budget deficit. We need to save every drop of petrol for a better future. Let us start by paying more but using less.

Meanwhile, the recent discussions over the yet to be announced petrol subsidy scheme makes me wonder where we are going as a nation. What should have been a way to help the poor and needy cope with everyday life is being treated as a right and privilege by many.

A subsidy by definition is a reduction in the price of goods in order to help a certain segment of society. But in Malaysia the petrol subsidy is a ‘blanket subsidy’ that benefits everybody from the humble motorcycle owner who carries his goods to market to billionaires owning a garage-full of Ferraris.

The problem with blanket subsidies is that because they are enjoyed by everybody in unlimited amounts, they cost a lot and Malaysia is literally burning away hard currency each time a petrol tank is filled.

While certain subsidies may have their intended effect to some extent, subsiding a commodity that benefits the rich more than the poor deserves some rethinking.

The provision of subsidised petrol has led to non-optimal allocation of resources, inefficient utilisation and leakages and has benefitted the higher income group more than the others.

Subsidies lead to lower prices but also lead to wastage and inefficiencies. In the case of petrol, because it is cheap, there is less incentive to plan trips ahead or ensure that the route taken is the shortest one.

Instead of throwing money at subsidies, we should be spending money on developing alternative energy sources, how to increase energy efficiency and finding ways to take more cars off the road.

We should also be trying to reduce petrol consumption by encouraging fuel consumption habits that results in an efficient use of fuel subsidies.

And one of the easiest ways to do this is to remove the subsidy and bring the price of petrol up progressively to market levels. Then people will think twice about using their cars unnecessarily.