Fuel prices making headlines

So it has finally come to this. Finally, the government is talking about something that influences the whole nation: Fuel prices. And it cannot be helped. In fact, fuel prices should have made headlines since early on when international fuel prices went off the roof! Two years ago, it was an all-time high at 70USD per barrel. At that time, it was already a worrying scenario for most of the world. But not Malaysia. People were still enjoying fuel subsidies, and thinking the subsidies will be there forever. They started to complain when prices went up by 30 cents.

Now, it has more than doubled since then. And there is no other way but to increase the retail fuel prices even more, as the government is absolutely drowning in their problems of how to overcome the high subsidies they dish out, how to overcome the budget deficit, and how to keep the consumers happy, all at the same time.

It’s never going to happen. Not all parties will be happy.

Just visit Malaysian Insider, and most of their latest news are on the petrol prices.

With the banning of subsidised petrol sale to foreign cars up north, it has been reported that petrol smuggling is even more rampant. This, to me, is to be expected. When cars cannot cross the border to fill up their tanks like they used to, prices of smuggled fuel going to syndicates will increase, and the margin of profit for these smugglers will increase. For the syndicates getting smuggled fuel, what is that extra few cents per litre? It is still way cheaper to buy from smugglers, than to buy in their own country. Until and unless the government moves efficiently to curb this smuggling problem, subsidised fuel meant for Malaysians will still go across borders.

Shahrir has been reported as saying that by August, retail price of fuel will depend on the global market. Analysts and economists have said that this is close to economic suicide. Rise in fuel price should be done in stages, it should be staggered. And I agree. There is no way that an over-pampered community of car users will take the price hike without complaints. If a 30 cent increase in fuel price could create discontent, imagine what it would be like if the subsidies are to be stripped off completely at one go. Prices that are currently at an average of RM1.95 per litre could shoot up to RM 4 per litre. If before this motorcyclist could fill their tanks with just RM5 a day, they would have to spend up to RM20 a day. And we don’t even want to talk about cars.

There has been talk about cash rebates for the low-income class, so that subsidies can reach them. This could mean that everyone would have to apply for a tax income account, whether or not they reach the threshold to pay income tax. This could be a feasible way to go about things, but to do all this by August is asking too much of a government that is currently under stress from all sides. Those of the low-income category mostly don’t even have income tax accounts. So in order for them to get the rebates, they have to apply. And imagine how many applications that would be. To have it all processed, and to have a good running system to distribute the rebates, time is certainly not enough.

With all this talk about doing away with subsidies, or reducing the subsidies, it also creates another sub-question. What is the government going to do with the money they save on subsidies? It could be that they don’t save at all, because the subsidies are currently running the government budget into deficit. Numbers are red.

But assuming that they do save, which most people would assume (since they have to pay higher prices for fuel), what is the government going to use the money for? Urban planning, and improving the current public transport system (if any) would be a good way to start. With fuel prices going high, there would be many people who would want to save and take public transport. But the government has to ensure that such an option is even available. It might be in place in the Klang Valley, but what about the outskirts? What about other states? And even within Klang Valley itself, how good is the public transport system? Ask anyone who has to bus regularly, or takes the LRT to work, and you will know how unsuccessful the infrastructure is. With such high densitiy population, a better transport system has to be put in place. And if the government has decided not to subsidise fuel, they have to have other solutions to ease the burdens of middle- and low-income class citizens.



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