PETALING JAYA: Consistently providing subsidies will not be sustainable in the long term no matter how good the government’s intentions are, said economists.
Universiti Tun Abdul Razak economist Dr Barjoyai Bardai said subsidies provided by the government have been a shield against inflation, which has remained in the region of 4%, adding that it could be about 11% or 12% otherwise.
He said people in the country have been fortunate since they did not feel the effects of inflation as the government has been staving it off.
“In the long term, the government has to look at targeted subsidies to help the needy. But to do so, it would need a different source of income. It cannot continue to rely on the taxpayers.
“A new source of income such as an endowment fund could be set up to help provide subsidies for the poor.”
Barjoyai said in the long term, the government would not need to use the annual budget to provide subsidies if it had such a fund.
He said last year alone the petrol subsidy was close to RM80 billion, which is the highest in history, adding that this is not sustainable and does not help the poor.
“Many of them do not own vehicles that guzzle fuel and a high number of them use public transport. Targeted petrol subsidies for the poor could help reduce the government’s expenditure.”
He said the government could use the money saved from the petrol subsidy to provide free meals for all students in school.
He added that for other types of subsidies the government could create an e-wallet for the B40 group to prevent everyone else from benefiting from the government subsidies.
Sunway University economics professor Dr Yeah Kim Leng said the government provides huge allocations for subsidies that have a long-term impact, but added that the money could be better used for development projects that create jobs and offer long-term benefits.
“The money provided for subsidies is used for consumption purposes and it is not a renewable resource.
“If the government decides to provide targeted subsidies, it is important to identify the group it wants to help. For example, the B40 and the lower half of the M40 group.”
He said more people benefiting from subsidies would only increase government costs and at the end of the day, it is the taxpayer who would have to bear the burden.
He added that the question now is how much subsidies the government intends to provide as removing them would not have an impact on the upper-income group given that they represent only a small portion of their spending.
Yeah said the upper-income group would not have a problem coping with higher inflation.
“The money saved by the government could be used for health, education and other sectors that will benefit the public. For the moment, it is the government who has to bear the high cost of inflation via providing subsidies. The question is how long it can continue to bear this burden.”
Yeah said reducing subsidies and giving them to a targeted group would help reduce the cost to the government and ultimately the taxpayer.
