In his letter to The Star, Michael Yeoh argues that the prime minister's decision to cut oil subsidy by further 30 cents is the bravest and best decision Abdullah Ahmad Badawi has taken as prime minister.
Personally, I agree that it is the bravest decision but not necessary the wisest one taken by Abdullah.
Yeoh further argues that the subsidy is not sustainable due to the prevalent high oil prices. This is true if Malaysia is a net oil importer. At present, the country is still enjoying a production surplus of more than 30,000 barrels a day. One of the most pertinent questions to ask is who benefitted from the surplus and profit generated from our oil revenue thus far?
How much of the oil revenue collected via taxes and royalties is channeled to rural development and to create better transport system not only in urban areas but also to enhance urban-rural connectivity? Instead, a staggering amount of our oil revenue is used to build various national monuments which are now becoming white elephants, eg, Putrajaya and Cyberjaya; and to bail out several companies linked to the government and its cronies.
As an economist, I agree that the provision of subsidy is an anti-thesis to overall economic competitiveness. Moreover, we spend a total of RM15 billion annually on the oil subsidy alone. Half of the amount is used to subsidise private vehicle owners who spend a number of hours daily trapped in traffic jams wasting away productive energy resources and valuable personal time.
However, we must not forget this is the result of the government policy in promoting and encouraging private vehicle ownership over the last 20 years. Under the Mahathir regime, the government celebrated both our carmakers, Proton and Perodua, as our national icons and pride.
Through the availability of cheap and easily accessible bank loans coupled with the neglect and poor maintenance of the public transportation system, Malaysia has turned into the biggest car market in Southeast Asia although our car prices are the fourth most expensive in the world! The verdict: we gained little in technology transfer from the foreign automotive giants and our national cars remained largely national or 'jaguh kampung'.
To his credit, Abdullah realises that the government cannot continue to subsidise private vehicle owners. Nonetheless, it is impossible for the government to rectify the situation without an open admission that the National Car Policy is a failure. Moreover, the society should be encouraged to consider other modes of transportation especially public transport which needs to be gradually improved and strengthened.
I would also argue that the decision to cut oil subsidy by a large chunk and the manner it was implemented is not the wisest or the best decision the prime minister has taken considering our current circumstances.
First, since the first subsidy cut in 2004, the government should have conducted proper planning to gradually reduce oil subsidy and at the same time strive to develop a comprehensive blueprint on a national scale to improve urban, urban-rural and interstate transportation systems. The creation of an affordable, efficient and integrated public transport system should be the main cornerstone in the government's development agenda for the 21st century. A good public transport system is key to our economic development.
Contrary to Yeoh's argument that the 'bold and decisive' action to bite the bullet and have one significant price increase is able to remove uncertainties and help businesses to adjust to higher fuel cost, the manner is which the abrupt action was taken has actually created price shocks to the entire economy. Although the government has promised to come down hard on profiteers, how long can the enforcement be sustained and how wide can it cast its enforcement net?
Back to the first argument, the government should have conducted proper planning since 2004 and educate the society on the need to change their mobility pattern and discourage private vehicle ownership. At the same time, the government should have started to develop a comprehensive public transportation system blueprint, provide measurable implementation milestones of the blueprint and provide a five-year timetable detailing a gradual reduction of the oil subsidy.
In this manner, individuals, businesses, foreign investors and the public at large would have better indications to adjust their business plans, lifestyles, budgeting, et cetera. Simultaneously, the government should strive to enhance productivity of the public sector, reduce wastages, improve efficiency and promote real economic competitiveness. This way, the eventual removal of fuel subsidy can be balanced by better productivity and efficiency.
No doubt Abdullah has taken a bold step but he should be guided to take wiser actions in the remaining years of his administration.