The issue of whether we should use government funds to be allocated for blanket subsidies as we have had in the past, or through direct transfers as the Bantuan Rakyat 1Malaysia (BR1M), is a conundrum.

The case for blanket subsidies is simple enough. Taxpayers pay taxes and thus everyone experiences the benefits; the poor, the rich, even companies to some extent - this keeps goods cheap.

However, with a growing population, blanket subsidies start getting more and more expensive due to the increase in consumption.

A second issue of subsequence is that blanket subsidies remove funding to alternatives. In the case of petrol, it increased the sales of the automotive sector but stunted public transport.

If we look at the issue with planters, farmers and fishermen, it kept them in the bottom 40 income group because there was no profit driven catalyst for them to grow. And this, of course, led them to not only be dependent on subsidies as consumers, but also on government handouts as well as selling off agrarian land for development.

From a business owners point, the blanket subsidies tend to ensure low prices of goods and thus, allowing them to flourish without a consideration on what market prices were, thus distorting their prices.

We saw this fact when an increase in petrol prices or electricity (and even water, to some extent) led to an increase in the price of goods.

Then let us look at costs; in 2015, RM32 billiom has been allocated to subsidies, with a regularisation plan attached.

A research paper by Maybank in 2013 pointed out that the country spent RM103.3 billion in total for the five years leading up to it, from 2008.

The note also says that subsidies make up 21 percent of government operational expenditure in 2013 and 106 percent of the fiscal deficit.

The idea that rationalising subsidies can be undone by stopping leakages is a familiar argument from Pakatan Rakyat lawmakers, yet the cost, the duration, and what to do in between, has been left up in the clouds.

Cuts on subsidy spending has been done on petrol, diesel, gas and even food products, most famously sugar.

This, coupled with the introduction of the goods and services tax has managed to introduce more funds to government coffers, albeit at the expense of popularity, votes and confidence - basically political capital.

To undo this BR1M handouts have been given out to those who the government calculates require assistance to the tune of RM4.9 billion in the 2015 budget.

That brings the total in terms of subsidies and direct transfers to RM36.9 billion, without taking into account the cash put out for farmers and even fishermen.

The issue with BR1M is the same faced internationally when we talk of plans regarding welfare. There will be leakages, fraud and even the question of whether the handout is enough or too small or even too infrequent.

A bonus for staying alive?

In the case of our welfare plan, handing out cash twice a year makes no sense. It makes it seem like a half-annual bonus just for staying alive.

At the same time, the salary and wages survey in 2012 shows that most Malaysians earn RM1,500 a month, while households in the median should make RM3,000 a month if it is fully dependent on just salaries.

Of course, the Malaysian Department of Statistics has since removed this report since it revamped its website for some reason or another.

Similarly, minimum wage has to be reconsidered and regulated according to each and every state. While RM900 is the national minimum wage reflected by taking 60 percent of the median salary of RM1,500, it is not reflective of the condition in each state.

In other words, it may be enough to live in Kota Belud, but it isn’t enough to live in Putrajaya where the median salary is RM2,800.

And thus, direct transfers such as BR1M should coincide with minimum wage and the median wage spread, if it wants to be any kind of help.

To do this, each state should have the authority to set the minimum wage within its own borders and work onwards from there. That means 60 percent of the median salary by state.

The federal government through BR1M acts as a monthly top up directly to citizens to reach the median wage - thus contributing 40 percent and less to minimum wage earners until they reach the median.

With the increase reductions in subsidies, wages will have to increase and thus, leading to a lessening of dependency to BR1M as they reach the threshold set by the government.

This will eventually stop blanket subsidies, increase wages and household incomes and lower government expenditure on subsidies, moving towards expenditure in direct transfers.

It is messy and it will be extremely painful on political capital since most of the government supporters beforehand came from the lower middle income bracket.

This bracket will be suffering most from the goods and services tax (GST), income tax and also subsidy regularisation. However, the focus then has to be on providing amenities for cost cutting to happen.

This includes affordable housing, a good public transport network to cut out the dependence on cars and petrol, and affordable food.

All three of which the government can build up using the cash in its coffers saved up from blanket subsidies and the continued regularisation plan.

It’s a trade-off to better spending by government.

The government can then focus on tax breaks for the middle class and continued tax reformation which should include environment tax, inheritance tax as well as a capital gains tax on stock transactions sans the various sovereign wealth funds.

These in themselves will help in the long run to create a more equal society in terms of wealth and income.

At the same time, there is a need to address worries that Malaysia is losing its lustre as an investment destination.

In this, I leave you to decide how to play it.