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We do not need economist to tell us what is wrong with the full blanket subsidies

1) First thing to do by the government is remove those wasteful and indiscriminate subsidies to rich people like sugar, cooking oil, petrol, textbook loan, university fees, etc.

A real case, I became a textbook loan sponsor for a good friend who earned several millions in a year. His wife wanted to enjoy the government subsidy as many poor citizens who earns less than RM 24000 a year.

Below is statistics for year 2009 with total 74 billion subsidies.

=> Petrol and diesel price subsidy is RM 15 billion

=> Sugar subsidy is RM 720 million.

=> Cooking oil subsidy is RM 850

=> Rice subsidy is RM1.34 billion

=> Flour subsidy is RM 140 million

2) Second thing to do is stop all subsidies to IPPs power generators, toll operators, water, etc.

=> Natural gas subsidy for IPPs is RM 12 billion

=> Subsidy for tolls is RM 800 million

3) Third thing to do is reduce the leakages of public funds due to rampant corruption and poor planning.

=> The losses due to corruption is RM10 billion per year.

My fair and justice solution:

What the government should do is re-distribute these subsidies to targeted groups only by giving cash to those workers with monthly salary less than RM 3000. These groups should receive at least RM 5000 per head or RM 10,000 per household yearly.

Scenario 1: How much it cost to give away RM10,000 handouts for household with less than RM 3000 per month income?

Assumptions:

– Number of household in Malaysia is 6.2 million

– 60% household earning is below RM 3000.

Therefore, cash rebate for 3.72 million households with income of less than RM3000 is RM 37.2 billion per year.

Total cash rebate at flate rate is RM 186 billion for next five years.

– With 12% annual increment in subsidy.

Total projected subsidies paid by the government is 82.8 (Y2010) + 92.8(Y2011) + 104(Y2012) + 116.45(Y2013) + 130.4(Y2014)

= 526.45 billion

Due to 57% subsidies are allocated for education and healthcare, RM300 billion is considered a must social obligation.

By removing all subsidies except education and healthcare, a total of RM 226.45 billion can be saved.

Net saving for next five years is RM 40.45 billion. (Compared with RM 103 billion package suggested by Pemandu.)

Scenario 2: How much it cost to give away RM10,000 handouts for households with less than RM 2000 per month income?

Assumptions:

– 40 % or 2.48 million households is under this group.

The cash rebate to this group is RM 24.8 billion per year or RM 124 billion for next 5 years.

Net saving for next five years is RM 102.45 billion. (Compared with RM 103 billion package suggested by Pemandu.)

The opportunity cost of corruption and public fund leakages is RM 50 billion, waiting to be tapped by our government.

The nkkhoo.com comment board with Facebook account.
Lam says:

Where you get the statistic from? Are you an economist?

No, I’m a trained engineer, but I did study finance and economics during my finance banking diploma evening course in IBF of Singapore.

You can find these economic statistics from the websites of Pemandu, Pemudah, Statistics Department, Bank Negara, etc.