New Petrol and Rice Prices

The Domestic Trade Minister, Dato ‘Ismail Sabri Yaakob,  recently  announced  new  dual price levels for petrol  to take  effect from  May 1 this year. Under the new system, the retail prices of petrol will be based on free market price for high powered vehicle engines  and  a subsidized price  for owners of low-powered  cars . Thus,  the price of RON 95  will likely remain at  RM1.80  for subsidized petrol and RM2.10 for petrol without subsidy, meaning the rate of subsidy is 30 cents per litre.

The  government has also earlier announced a new  coupon system under a subsidy scheme   for low income rice  consumers,  including the hardcore poor families. This will replace the existing rice subsidy scheme for Beras Nasional 15%.

What doesn’t appear right in these two cases is a shift further in the government administration of the subsidy scheme in favour of intricate measures which  have been avoided   during Tun Mahathir or even Pak Lah governments.

During the Tun Mahathir era,  rice and Petrol subsidies were given to all. Although these  benefitted  unintended parties, at least it spared the government of having to  take   intricate and costly measures  to  administer, monitor and enforce such a system.

For instance, in a coupon or differential price system, it may be necessary  for the government to keep track on the income level of consumers to identify who are eligible. Later coupons have to be printed and distributed efficiently  to eligible people only. How does the government ensure that only rightful persons get the coupons and no fake coupons are distributed. And further an elaborate system of monitoring and enforcement has to be instituted, and this will require  additional manpower that should better be deployed to more productive sectors.

The use of  Mycad  to monitor sales of Petrol may be feasible to cover most of the consumers, and thus simplifying the process,  but how does the system take care of sales to  expatriate local residents or sales to company owned vehicles?

While the Najib administration  is undertaking  measures to deregulate   the economy and make it more efficient   by  liberating certain sectors  and more recently by  introducing  The New Economic Model, the  introduction of an elaborate subsidy  scheme  should not at all be on the agenda. This is because, while the  other measures are meant to create an efficiently running economy in line with  1 Malaysia concept,  an elaborate subsidy scheme is nothing more than a  regressive  measure that will  create   new  regulations and enforcement  efforts  that  will distract  the  nation’s  attention away  from important  agenda to  achieve  developed nation status. 

The  policy makers in the government should know how difficult it is to administer different price structure in the same economy. It will become the breeding ground for black market and corruption.

Indeed,  such  measures  as the proposed  rice coupon system  should only  be considered during  emergency or in time of war.


Related Articles:

1. Isu Kenaikan Harga Petrol dan Petronas

2. Dua Harga Petrol dan Beras

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