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NST :SYED NADZRI: Fuel subsidies: Loaded, unloaded?
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<blockquote data-quote="Lee36328" data-source="post: 240547" data-attributes="member: 113"><p>Well, if they can't enforce the current diesel subsidy... you can imagine the rest.</p><p> </p><p>Let's look at the situation from a few perspectives.</p><p> </p><p><strong>Effectiveness</strong></p><p> </p><p>How many people are in the rich category and how many are in the poor category? When they say reduce subsidy for the rich, what is the cutoff point? Where does the bulk of the RM40 billion go?</p><p> </p><p>For a start, lets forget the super rich. The odd super car here and there are very fuel-hungry but they are hardly taken out, so it won't make a dent in the RM40 billion. You can tax the super rich anything car-related you want; they can afford it, but it won't make a dent.</p><p> </p><p>So, the only target left is the middle income group. Which happens to form the bulk of the national GDP. Not to mention a significant percentage of the voting public. So, hitting them <strong>directly</strong> in the wallet does not bode well for the economy, which is already not so healthy.</p><p> </p><p>Tagging subsidy reduction to the vehicle capacity misses the point. Newer vehicles consume less fuel than older, less-maintained vehicles of equivalent capacity. What will happen is that the market will react by switching to lower-capacity vehicles. Rotary engine cars like the 1.3 litre Mazda RX will become very popular. So will turbo charged cars.</p><p> </p><p><strong>Enforcement</strong></p><p> </p><p>It is not possible to implement multi-tier pricing, or in economic terms, <strong>price discrimination</strong>, on a product that is uniform, indistinquishable, easily stored and transported. Enforcement would be a nightmare. The same amount spent on enforcement would yield more benefits elsewhere, like improving the police force. It would be ironic if there are more <strong>fuel police</strong> than regular police on the road.</p><p> </p><p><strong>Existing Measures</strong></p><p> </p><p>Specific ways of making the rich pay more are already in place.</p><p> </p><p>Income tax</p><p>Road tax</p><p>Car import duty</p><p>Car import AP</p><p> </p><p>Time and resources would be better-spent in improving and collecting on these measures.</p><p> </p><p>There is no way to reduce the RM40 billion fuel subsidy without directly impacting the economy. Inflation, coupled with recession is the likely outcome. And the impact to the economy won't be compensated by money spent to "further develop the country", at least not immediately. Government income from taxation will be hit by recession as well. So, the net budget savings from the reduction of the subsidy will be less than it appears.</p><p> </p><p>Subsidies are an artificial crutch which distort the economic system and is detrimental in the long term. So, removing it is a noble and rational objective.</p><p> </p><p>One feasible approach worth considering is a gradual subsidy reduction plan across the board, spread over a number of years to lessen the impact, while taking measures to improve productivity of the population. A more effective and transparent system based on open competition would be a good starting point. </p><p> </p><p>And finally, this statement is quite revealing.</p><p> </p><p>"this might not give the <strong>impression</strong> that the poor are actually benefiting from the subsidy revision."</p><p> </p><p>Are we trying to address the problem, or just giving the appearence of doing so? Will the <strong>impression</strong> make a dent in the RM40 billion?</p></blockquote><p></p>
[QUOTE="Lee36328, post: 240547, member: 113"] Well, if they can't enforce the current diesel subsidy... you can imagine the rest. Let's look at the situation from a few perspectives. [B]Effectiveness[/B] How many people are in the rich category and how many are in the poor category? When they say reduce subsidy for the rich, what is the cutoff point? Where does the bulk of the RM40 billion go? For a start, lets forget the super rich. The odd super car here and there are very fuel-hungry but they are hardly taken out, so it won't make a dent in the RM40 billion. You can tax the super rich anything car-related you want; they can afford it, but it won't make a dent. So, the only target left is the middle income group. Which happens to form the bulk of the national GDP. Not to mention a significant percentage of the voting public. So, hitting them [B]directly[/B] in the wallet does not bode well for the economy, which is already not so healthy. Tagging subsidy reduction to the vehicle capacity misses the point. Newer vehicles consume less fuel than older, less-maintained vehicles of equivalent capacity. What will happen is that the market will react by switching to lower-capacity vehicles. Rotary engine cars like the 1.3 litre Mazda RX will become very popular. So will turbo charged cars. [B]Enforcement[/B] It is not possible to implement multi-tier pricing, or in economic terms, [B]price discrimination[/B], on a product that is uniform, indistinquishable, easily stored and transported. Enforcement would be a nightmare. The same amount spent on enforcement would yield more benefits elsewhere, like improving the police force. It would be ironic if there are more [B]fuel police[/B] than regular police on the road. [B]Existing Measures[/B] Specific ways of making the rich pay more are already in place. Income tax Road tax Car import duty Car import AP Time and resources would be better-spent in improving and collecting on these measures. There is no way to reduce the RM40 billion fuel subsidy without directly impacting the economy. Inflation, coupled with recession is the likely outcome. And the impact to the economy won't be compensated by money spent to "further develop the country", at least not immediately. Government income from taxation will be hit by recession as well. So, the net budget savings from the reduction of the subsidy will be less than it appears. Subsidies are an artificial crutch which distort the economic system and is detrimental in the long term. So, removing it is a noble and rational objective. One feasible approach worth considering is a gradual subsidy reduction plan across the board, spread over a number of years to lessen the impact, while taking measures to improve productivity of the population. A more effective and transparent system based on open competition would be a good starting point. And finally, this statement is quite revealing. "this might not give the [B]impression[/B] that the poor are actually benefiting from the subsidy revision." Are we trying to address the problem, or just giving the appearence of doing so? Will the [B]impression[/B] make a dent in the RM40 billion? [/QUOTE]
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