Written by Syafirah

Subsidy works differently from tax. The only thing that is in common between the two is that they are the results of the policy-making by the government under a very detailed and scrutinized budget.

While tax needs to be paid by the employees or business entities to the Inland Revenue Board of Malaysia (or 'Lembaga Hasil Dalam Negeri Malaysia'), the opposite things apply to the subsidy. It is the government who was responsible to award the subsidy as an incentive to SMEs, big industry players, MNCs, NGOs and etc. either by giving cash, public grants, or tax breaks.

The motivation behind the subsidy aids is to help producers improve their goods and services supply to the market. With the subsidy, it is hoped that factories are being able to multiply the success rate of a production line according to forecasted consumer demand. This is because subsidy helps the business owner to find alternative methods or substitutes for the raw materials to reduce the costs of production. The subsidy also supports businesses to innovate their R&D department, types of equipment, or machinery to escalate the production line at full capacity to reduce the shortage of products and disruption of services to the consumers.

In another way, it helps the consumers to get quality products at much cheaper prices. Commodities such as rice, sugar, palm oil, beef, chicken, and eggs as well as petrol and natural gas will be guaranteed to be at much more reasonable local market selling prices. Electric tariffs and clean water bills will also be reduced and not burdensome.

Another important thing that the subsidy brings about is how it helps to secure employment opportunities among the citizens. With factories running at full capacity, both skilled and unskilled workers will be needed. Salaries and wages can be offered at a much higher bidding amount to attract job candidates and loan their employee retention. The HR department will also enjoy the privilege to ramp up its training and development programs to support and motivate existing workers. Eventually, the subsidy will be one of the main backbones of the country's productivity growth and helps the citizens to cover their monthly expenses aside from being able to save for future or emergency needs.

Now, will Targeted Subsidies proactively address the rising cost of living among Malaysians rather than the former Comprehensive Subsidies?

The answer to this depends a lot on whether Malaysia already owns a positive set of market externalities. These benefits should prove the interdependency and correlation between the needs and wants of society. The existing subsidy must also show no negligence to certain segments of people while letting the producers accumulate more wealth and fortunes.

It is because a poorly planned subsidy policy under a very highly allocated budget that brings along loan interests from the World Bank or International Monetary Fund or even foreign investment schemes or equity bonds can potentially distort the money circulation system. Income, revenue, and welfare of the whole society will be negatively affected if sudden inflation, sanction, war, drought, or natural disaster happens.

1. Manufacturers Subsidy

If the government allocates certain targeted subsidies to the manufacturers without proper audit and inspection, it may cause an uncontrolled selling price as a result of overproduction, low production, and smuggling activities.

Palm oil itself is sold expensively to consumers even though Malaysia is one of the largest palm oil producers in the whole world. There is no need to highlight subsidized packet palm oil because although with a limit of 3 packets per person, the next-in-line person can easily get access for the continued purchases. There is nobody to cross-check items being bought by whom and retailers will not tend to reduce profits by strictly prohibiting large buying.

2. Consumption Subsidy

Inefficient targeted subsidies towards the level of consumption among the people will unintentionally change the course of normal buying behavior. As a developing country, it is common for the people who live and resides in Malaysia to have subsidized goods and services as basic requirements in daily life to cope with the costs of living.

However, when subsidies on food, education, water, and electricity being splits between the rich and the poor, things became unnatural. It is because less consumption leads to market surplus which eventually will make the price to be lower or stay the same whilst the quality may already be jeopardized. In contrast, more consumption means sudden market shortage which triggers uncontrolled hikes in selling prices or retailers being stingy to fill up the shelves as a way to boycott the alarming unprofitable situation.

3. Export Subsidy

Tailoring targeted subsidies to the export business entities encourages manufacturers to sell their outputs more to foreign markets instead of domestic markets. The reason is that certain commodities, goods, and services can be sold at much higher prices to overseas' people than the locals even with less concern about the quality.

Although the government can collect back higher tax revenue from these exporter manufacturers, it has put the risk to local citizens. People would have to pay an expensive price for the same item that is being exported out of the country in the name of brand and prestige even though it is made in Malaysia. People would also have to face product scarcity as the result of manufacturers considering more profits than the patriots' responsibility. Abuse of subsidies will happen when larger government incentives are used to cover dummy or unreal production costs costing more of the taxpayer expenses in the name of profits to the conglomerates.

4. Employment Subsidy

Targeted subsidies to escalate more opening vacancies to the people are indeed celebrated. However, the existing Wage Subsidy Program (WSP), the Covid-19 pandemic hiring incentives, and many other employee retention programs under the Human Resources Ministry and the Social Security Organisation (Perkeso) are said to have some loops in between with tendencies for immoral activities such as bribes and beneficial tokens.

Even with slight improvements in securing places for those unemployed graduates, there are still many unskilled and skilled workers looking out for a job to feed. Thus, raising issues of inefficiency for the government to continue aiding these employment subsidies at a mega scale. After all, the job seeker will be the one badly affected in losing the battle to secure a permanent position with a competitive income.

In conclusion, planning transitions from comprehensive subsidies into targeted subsidies will require more insightful opinions if a record of success would like to be documented by the newly formed government. The two weeks time frame could not weigh upon the pros and cons as subsidies are liquidity in nature which changes over time and variety according to mutual agreements. The best thing to do is to come up with a solid backup plan and alternative for emergencies in case the targeted subsidies did not works well.

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