What Happens When Government Removes Subsidies On Goods

How will the REAL Keluarga Malaysia be impacted with the taking away of subsidies of bottled cooking oil and the removal of ceiling prices for chicken

On Tuesday, Malaysians were distracted from their Facebook postings with the news that certain subsidies will be removed from July 1, specifically cooking oil in bottles, while the ceiling price of chicken will be removed.

It was like a wake-up call for many consumers and retailers alike, that they have no choice but to tighten their belts and look at more effective ways of cutting corners. Our little family went through this when we were living in Hong Kong and Australia, even when in the UK, albeit for a short while. 

But it takes a strong and effective government with the right policies to get us out of recession or to divert our possible slipping into a recession period.

When I mentioned about effective government policies, I can’t help but ask Malaysia’s former premier and one of the country’s most effective Finance Ministers Najib Razak what are his thoughts about the recent announcement by the gov’t on the removal of subsidies and ceiling prices.

Not a fan of bulk subsidies - Najib
Najib: Today, the government has also abolished the subsidies for chicken and eggs that were given since February 2022.

Surprised that he answered my message, albeit later, he said that we must move from general subsidies to targeted subsidies. Current subsidy for petrol is benefiting the rich much more than the B40, he wrote, quoting his stand expressed in his recent FB post.

He had written: Since April 2021, I have warned the PN government then that price control of chicken and eggs, without solving the main problem, that is chicken feed and operation costs due to lack of manpower and high electricity rate, will only result in lack of supply and higher prices.

But it went unheeded.

As a result, many farmers and chicken and egg producers could not sustain their business and they were forced to sell their products below cost for a long time. Because of this, production and supply dropped.

When demand is higher than supply, prices will naturally go up.

He added: Today, the government has also abolished the subsidies for chicken and eggs that were given since February 2022.

Producers who are still operating will definitely take advantage of this situation and sell them at a higher price since the ceiling price was abolished to recoup what they have lost since April last year.

Fuel Subsidies

“I am not a fan of bulk subsidy as the present system only benefits the rich,” he said and added that the current Finance Minister understood this.

“For every RM1 of fuel subsidy, 53 sen goes to the T20 group, while 15 sen is utilised by the B40,” finance minister Tengku Zafrul was quoted as saying in an Astro Awani report. 

A sixty-five per cent reduction in the sale of RON97 is proof that the rich have changed to RON95 to enjoy the subsidies.

It is like the rich taking food from the food bank.

Today, the government is providing subsidy of about RM2.50 for every litre of RON95 which is currently being sold at RM2.05.

Malaysia’s RON95 price is among the lowest in the world – even lower than Saudi Arabia and UAE.

If a T20 individual fills up 50 litres of RON95 for his luxury car, the government is actually subsidising RM125.

If the rich man fills up three times a month that would mean, the government is subsiding RM4,500 a year for him – higher than the BR1M provided to the B40 and M40 groups.

Najib added that “we solved this problem and unfairness when BN was in power by floating the prices.”

BR1M

The savings were channelled to BR1M which was increased from RM500 to RM1,200 and more people enjoyed the benefits. In the end, it was increased to RM2,000 a year during the GE14.

But judging from the high inflation rate globally, it is not the time to fully abolish the petrol subsidy. But the government can consider increasing the price of RON95 by 10 or 20 sen.

The government should also consider raising the export duty and extraordinary profit tax for the oil palm industry as the world is currently facing a shortage and the price is still high as it is being paid by foreign buyers and major plantation companies – not by settlers.

Subsidy savings of 10 sen or 20 sen plus palm oil tax and savings of the abolished chicken and egg taxes can be channelled as cash assistance for the B40 and M40 every three months as long as the inflation rate is high.

The T20 group is not affected by the high cost of food products but it greatly affects the B40 and the majority of M40.

Every three months cash assistance will provide relief to the B40 and M40 groups.

Apart from that, the gov’t should also resolve the lack of manpower as soon as possible as this is one of the main factors for reduction in production and price increase, the Pekan MP added.

We asked Zam Yahaya, who writes for the New Malaysia Herald on the people’s economy, his thoughts on the removal of subsidies.

Removal of certain subsidies will have a spiral effect
Zam Yahaya: When you remove subsidies of certain essential goods, we will then see the SPIRAL effect. – NMH file photo

“With this new development, for sure, prices of other commodity goods will increase as retailers will use the removal of subsidies as an excuse to increase their pricing, even though other products than those mentioned are not affected.

“Additionally, profiteering, especially during festive seasons, will happen, as the cartels and retailers will hoard goods, playing on the demand and supply effect.

The Spiral Effect

“More frightening, the cost of living will go up again in six months, leading to pressure on the minimum wage. A wage hike will have a SPIRAL effect on the overall price of goods and when this happens, it’s bad. 

“By that time, it will be uncontrollable,” said Zam who occasionally sells Nasi Kenduri to his regular clients, but finds it difficult to maintain the pricing due to the triple-fold increase in prices of ingredients.

Yesterday, the Domestic Trade and Consumer Affairs Minister Alexander Nanta Linggi announced that the subsidy for 2kg, 3kg and 5kg bottles was a temporary measure, adding that the government spent about RM20 million on subsidies each month. 

Subsidies for bottled cooking oil will be removed from 01 July but the 1kg cooking oil in polybags will still be subsidised.

He said the subsidy scheme, implemented on 01 Aug last year, was meant to be a temporary three-month move but was extended until now. 

On chicken prices, Nanta said it would not exceed RM12.50 once the removal of its ceiling price starts on 01 July 1, adding that the price range would likely be between RM10 and RM12, based on assurance from livestock farmers that prices of chicken will not exceed RM12.50. 

He was speaking after a dialogue session with industry players, consumer associations and representatives from various economic sectors. 

Act Against Profiteers

Nanta warned poultry industry players against excessively increasing the price, saying: “We will not hesitate to take action against those found guilty of violating the anti-profiteering law.” 

It was reported that the government would spend more than RM2 billion this year to maintain the subsidised price for cooking oil in polybags. 

Nanta also said that his ministry will cooperate with other ministries regarding the flexible ceiling price. 

Not all controlled items are under the ministry as some involved other ministries. 

“The flexible ceiling price is not only limited to chicken, sugar, cooking oil or flour, which are all under the Domestic Trade and Consumer Affairs Ministry. It involves other products as well. 

“We take note of this and will work together with other agencies and ministries to do proper research to successfully execute this plan,” he said. 

The REAL Keluarga Malaysia

As for me, I think the gov’t is clutching at straws in trying to resolve issues that end up sounding like robbing Peter to Paul. 

Perhaps it is time for Prime Minister Ismail Sabri who keeps on saying that all is well with Keluarga Malaysia and there is no need for an election just yet, goes down to meet the REAL keluarga Malaysia.

Ismail Sabri should start meeting those who are barely able to eke out a living because prices of goods keep on increasing and have to do two or three jobs simultaneously to put food on the family table. Recent announcement of additional RM100 and RM50 payouts just won’t cut it.

Perhaps it is time we have the right people to manage the country’s coffers. 

Surely it can’t be worse than this, except during the 22 months from May 2018 – January 2020, when the leaders then had no clue what to do and how to help the country and its people.

It was quite a shock to me and the family as we had just returned to Malaysia then and wondered why the gov’t was changed in 2018 when it was doing so well for close to ten years before that. Oh well, that’s all water under the bridge now. – New Malaysia Herald

About the writer: Carole Raymond Abdullah is a freelance writer who used to domicile in Hongkong for many years. She is now back in Malaysia, totally surprised at the turn of events in the country lately.

The points expressed in this article are that of the writer and do not necessarily reflect the stand of the New Malaysia Herald.

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