The inevitable oil hike

So it is either Wednesday or August that the new petrol subsidy will be in place. There is a lot of confusion,  in typical Malaysian style. According to Malaysiakini , this is how the confusion arises:

Will it be in August as mentioned previously by the Second Finance Minister Nor Mohamed Yakcop as well as by Domestic Trade and Consumer Affairs Minister Shahrir Abdul Samad today?

Or will it be as soon as this Wednesday as announced also today by Prime Minister Abdullah Ahmad Badawi?

Whenever it may be, one thing is sure – everyone is confused by the conflicting statements from the three ministers.

Earlier today, Shahrir said that fuel prices will go up this August. His remarks echoed Nor Mohamed’s remarks last week of a price hike before the Budget, which will be unveiled on Aug 29.

However, Prime Minister Abdullah said today that the government will announce on Wednesday a new fuel subsidy.

According to Bernama, he also said that the decision on the fuel subsidy will take effect immediately to avoid any speculation

Either way, confusion not withstanding, the petrol pump price is going to go up.

The group that will be hardest hit will be the poor and the middle class living in the city. The rural folks are fairly well off of late thanks to the good commodity prices and a simpler lifestyle than their city counterparts.

The rich has plenty to spare, a few hundred ringgits extra will hardly make a dent on their piggy banks. The poor will probably receive subsidy for their old protons or motorbikes. It is the middle class, earning perhaps around 2000 to 3000 a month that will be hardest hit. The poor has probably been used to living very frugally, but the middle class will see a big chunks of their disposable income going to pay for the increase in fuels. They will have no choice but to change their life style, eating less outside, cut down on entertainments etc.

Nevertheless, ultimately, even the poor, despite receiving subsidy, is going to be badly hit because the price of everything will be up, as a results of the increase in petrol pump price.

The retail sector  will be badly ht. Restaurants and supermarkets will be forced to closed because of rising costs and decreasing clientele, and thus unemployment rate may go up and so may the crime rate.

In a nutshell, we will have to face major change and a major overhaul of our lifestyle. Many of us may need to car pool; many of us may need to take public transport. The latter, however, is so inefficient that I doubt it will be ready to face increasing demand if more and more people are forced to take public transport as a results of the oil hike.

We have in fact been given plenty of time to overhaul our public transport system, but sad to say , the whole transport system is still very pathetic, due to lack of good planning and channeling of the necessary funds to white elephant projects

Doing away with subsidy is good in the long run, as I have mentioned before, but it should have been done gradually for the poorer section of the population to adjust. In hindsight, we should have started the process gradually over the last 2 years.

We do not know how the new mechanism is going to be. But, like one of the commentators ‘romerz’ said yesterday in his comment in my yesterday’s post, “No matter how equitable a mechanism or laws we have in place to deal with subsidies, it all counts for nothing when criminal elements can abuse the system and the enforcers are playing a catch-up game. Worse still if the enforcers are in cahoots with the criminals.”  This is important and I hope that the setting up of the MCAC has to be hastened.

Now that the subsidy is been re-schemed , I hope that more will be done to improve our public transport system so that the people will have a real alternative .

Please also refer to my post yesterday : Petrol subsidy to be removed in August ? 

Please also read this article which I wrote in July and which was subsequently published as a feature article in Malaysiakini : The Curse of Oil


20 Comments (+add yours?)

  1. monsterball
    Jun 03, 2008 @ 13:48:44

    UMNO can never make things simple….because from the start of everything…it is not for the benefits of Malaysians…but for race and religion and how to win votes.
    From the time of Mahathir …all those should stop and move forward to unite all as Malaysians.
    Mahathir knew it could be done so easily by him….being such a smart and far sighted man…but he wants out-dated… race and religion politics and being the founder of his UMNO BARU…so country and Malaysians are not in his mind at all.
    So with his evil….selfish and corrupted personality… smart…to get others to do his dirty prove of corruptions on him…can be proven. Then that formula…created more crooks in the history of Malaysia….than under any other PM.
    For 22 years…3rd generation sprang up…..can think…internet opened up for more opinions..easily available…and the end result…everyone knows…Magathir is the man..trying to disunite Malaysians…disunite…Malays…playing the ever smart British divide and rule….thinking UMNO will rule Malaysia forever… that way.
    Dollah clearly wants to expose and change everything….but it is all talks……no actions….simply due to his no guts and selfish personality too.
    One may ask….what has all these to do with Doc’s message.
    Well…..get to the root of the problem…and Malaysians can get all the answers they want.
    Solutions???…Vote them to be an opposition… the smartest decision….all Malaysians can …and if People’s Party. prove to be no better……then choose between the two devils….next and nex election….but never… always stick to UMNO and BN… gobologs.


  2. aadya
    Jun 03, 2008 @ 14:43:58

    The oil hike is a global phenomenon, and with it brings a domino effect of rising prices of goods too. Dr Hsu, you highlighted a good point about what romerz say, which I believ so is also very sad to see it still happening even now. The government now has to really get their act straight not for their best interests but for the Rakyat. With what has happened in malaysian politics recently, I am guessing they are paying attention to us normal folks more than ever. But the fact that they have to snapped back to reality the hard way, that is one thing that is also sad about it. But as a patient observer, I think it is possible they can change their ways. Let us all pray for that.


  3. A true Malaysian
    Jun 03, 2008 @ 16:20:00

    Perhaps government can look into giving ‘petrol consumption subsidy’ to businesses as vehicle to lessen hardship to be faced by businesses.

    For example, if the present subsidy of 50% is abolished, RM1 of petrol price now will be RM1.50. The present system has its shortcomings whereby even foreigners are benefited when pump petrol in Malaysia.

    So, the government can give this subsidy by way of ‘petrol consumption subsidy’ to businesses where RM1 petrol consumed will be entitled to, say RM1.50 as tax deduction in arriving at each individual income taxes.

    With this ‘petrol consumption subsidy’, the pressure of inflation will be lessen and prices of goods and services will not be increased tremendously.


  4. monsterball
    Jun 03, 2008 @ 16:24:24

    Lets hear from countries that are oil producing and have surplus oil for exports…….what prices are they selling… their people…especially from Brunei…a non corrupted country.
    Why talk global….when globally ..almost all countries import oil.


  5. Justin Choo
    Jun 03, 2008 @ 22:34:25

    Dr Hsu

    “Doing away with subsidy is good in the long run, as I have mentioned before”.

    I would like to read your post on the article. Can you please provide the link? Honestly, I still could not understand how we can be better off if we have to pay higher petrol prices with the others following suit. Retired people like me is going to get hit very severely!



  6. chauncey gardener
    Jun 03, 2008 @ 22:39:10

    If Malaysians are to relate to global oil prices once the subsidies are removed, shouldn’t Malaysians also be able to pay car prices at a global rate as well since they are currently inflated ?


  7. romerz
    Jun 04, 2008 @ 02:35:21

    Dear Justin Choo,

    Subsidies create an artificial sense of competitiveness for businesses. Moreover, these subsidies have to be paid for from somewhere.

    Money spent on subsidies is not capital expenditure hence there is no upgrading of infrastructure, production capacity, productivity, etc., to earn more money.

    Since our economy is highly dependent on the global economy, there will come a time when we are just not able to compete with rest of the world. Not only that, Malaysia’s population of 27 million is simply not big enough a market to be a close economy.

    Of course, retired people like you will be badly affected as will many segments of society to which the government has a responsibility to address.

    Logic dictates that the government will still provide subsidies to those who need it and if they fail to provide such subsidies, then they would have failed in their social responsibility as a government.

    It is the current ‘blanket subsidies’ which is doing more harm than good to the nation and should be removed.

    As it is, a lot is also spent on subsidies on those who do not need them and the savings on these subsidies could be used for capital expenditure to eradicate poverty.

    In a way, subsidies should be structured like income tax which is progressive as this will also help towards bridging the haves and have not.

    This is my simple understanding of subsidies. I welcome any economist to correct me and provide a better argument for removing subsidies. I too would like to know so that I can explain to others who can’t see the reasons why the need to remove subsidies.


  8. monsterball
    Jun 04, 2008 @ 08:00:52

    At the present moment….subsidizing this or that are needed by the government…and let them think of the ways and means …how to do that for the poor and needy.
    You see…… need not be an understand..our country ….with so much wealth and natural resources….if properly managed…..sincerely…..truthfully…need not be at this pathetic poor position.
    One may say…governments are same all over the world……not true.
    Had Bush not did what he did to Iraq..USA would have gone into recession….long ago. It’s being.. unable to fool Americans anymore that stopped him go further. It’s oil…he was after….to save Americans…..and he did that.
    So….lets talk solutions?
    Who wants to know? UMNO marchais?
    Suffer for 5 more years….and change the government.
    If not done….continue suffering……..period!!
    No one is a fool…to tell you a cure…under present government….which has no cure….simply being a gone case government….not willing to weed out corruptions ….real and fast!! Talk as much as you want….but the real sufferings will be felt… year onwards……and once that happen… many more crimes should be expected….huge demonstrations…and let that nickumpoo …corrupted………sly fox…Najib ..keep saying…it’s UMNO’s interest…most important and not our cultures to do that…or copy…..Hussein’s famous words…..”‘..sensitive issue”.
    I have a strange feeling…UMNO loves the present position…to rojak the country…and make Malaysians depend on them…….all over again .


  9. Justin Choo
    Jun 04, 2008 @ 10:25:47

    Hi Romerz,

    Thank you for the layman’s explanation for which I can understand.

    The logic and reasons may be justifiable. But I shudder to think of the dire consequences because knowing the culture of the present Government, I expect great upheavel for the awful mess it is going to generate. The Government is simply downright incompetent and unprepared for such drastic actions, to manage, monitor and enforce an equitable system.


  10. kwai lan
    Jun 04, 2008 @ 10:30:53

    All those gomen promises abt better public transportation remain as they are – mere empty promises. So the public are stuck…lousy public transport and soaring petrol prices..which way to go…my dear bodohwi ?


  11. yh
    Jun 04, 2008 @ 11:48:20

    imagine 3 mass transit system ie star line, monorail line and putra line are not interconnected. this is one classic example of mahatir’s cronyism at the expense of the rakyat.
    then, you have Badawi closing one eye on the RM4.7 billion Port Klang Free Trade Zone scandal.
    Just pop over to Singapore and compare with their transportation system with ours. Or since we dont like Singapore, just have a 4 hour fight to Hong Kong and marvel at their efficient system.
    in the freaking nam eof NEP, the rakyat has been screwed big time and you must be really thankful of BN.
    And now, the same government is telling us it cant afford the subsidies anymore. What happens to the super profits earned by Petronas? Evaporated just as petrol will? Goodness, unless the government comes clean, no way the rakyat will accept its plan to do away with the subsidies. I will vote even with my feet against them come next election.


  12. Dr Hsu
    Jun 04, 2008 @ 13:22:57

    hi justin, sorry for the rather slow reply. Was busy last nihgt.

    You can try one of my earlier posts:

    there were one or 2 earlier one but the essence is here. But i think romerz has given a even better explanation.

    But certain groups like the retired and the poorer section must be helped … that is the responsibility of a good and caring government.

    Also the subsidy cannot be removed just like that. It will lead to run away inflation and when people cannot afford, people may even take to the streets.

    I hope the government will really pay heed to those calling for a more gradual approach.

    Also Justin, you can read this article of mine in Dec 2006 which was published in Malayiakini talking about the open economy.. Although it is not about subsidy, the principle is more or less the same behind. . this same article is also available in this blog under the Dec 2006 archive.


  13. romerz
    Jun 04, 2008 @ 16:03:52

    Dear Justin,

    You are absolutely right with your fears. As I mentioned earlier, I’m rather fearful of the implementation part. Especially when there exist so many ‘little Napoleons’ and inept civil servants who are entrusted to execute systems conceived by the cabinet and their advisors. Not to mention the unscrupulous people who will find every opportunity to profit.

    Actually our country does not lack good laws or systems. It is the implementation and enforcement part which causes all these dissatisfactions.

    However, there is a role we can play in all these by joining ‘watchdog’ groups and reporting abuse or simply inefficiencies to the relevant authorities.

    I know that there will be detractors who will say what good will that do but its a step forward. And even if it falls on deaf ears with the authorities, it will give the opposition ammo to press the government for immediate action.

    And if that also fails, it will at least enable the rakyat to have enough information to make an informed choice at the next GE.


  14. romerz
    Jun 04, 2008 @ 20:47:26

    Wow, a 40% increase effective midnight tonight!

    This is the part I can’t understand.

    “For owners of private vehicles with engine capacities exceeding 2000cc, road tax will be reduced by RM200.”

    If they are deemed ‘wealthy’ enough not to qualify for the RM650/- rebate, then why do they get a RM200/- reduction in road-tax?

    Don’t tell me this is one of those cosmetic gestures where they government can claim that everybody got something and nobody was left out.

    The RM200 is more symbolic than anything to the ‘wealthy’ so why even bother giving it to them?

    They definitely don’t need it whereas the ‘poor’ do!


  15. monsterball
    Jun 04, 2008 @ 22:53:39

    Petrol up by 80 sens per litre!!
    But there seems to be some compensations planned for the poor and middle class.
    But what is a saving of approximately RM300 per year….provided by the government…as against motorists spending more than M3000 per year…and the look of it. This is just an example. Go think out your own conclusions.
    I suspect… a large significant group of Muslims will suffer most… they are the ones…with big cars …brand new ones…exchanging every year…..for new model…as they seems to have lots of easy money. No matter how much they have……the values have gone down drastically….and they are famous..loving to buy many things under installments….ignoring the high interest charges too. …as most important…they can get them…by easy installments.
    The change reaction…will be another..approximately 20% more on cooking oil..vegeable….meat…rice…salt and all the essential again.
    It is the fixed low income salary group that suffers most.
    I must increase the salaries of my workers..tomorrow…even though…we are not getting the extra profits…to do that. But suffer together…..we must. That’s my policy.
    Now…our oil prices is nearly closing up to Singapore……a non producing oil country..yet our money value…stays as it is… against Singapore.
    Notice….we are only gaining against Indonesia…..and that I believe ..will end soon….meaning Malaysia is heading to join the poor countries like Vietnam and Cambodia…..very soon….and those two will improve faster than us….and the ultimate result.. we will be competing against….Loas and East Timor….which country is the poorest in South East Asia …soon.


  16. pohwatchdog
    Jun 04, 2008 @ 22:54:09

    Time have come for us to review, reinvent and refocus our needs. Our Federal government have make the right move to reduce subsidies not only for petrol and diesel. No doubt…it will hit hard at those who stay in the urban area especially those urban poor.

    Various programmes to assist the hard core and urban poor need a proper implementation. We need dedicated and capable civil servant that is civil and care enough to help those in needs. We need to tighten our belts and have austerity drive in the every level of society. We
    don’t need big car, big house and big meal.
    Just need to eat smart for a healthy and
    fit life. We can count our blessing in Malaysia if we will to compare with our neighbours in Thailand, myanmar, Thailand or Singapore. Are they better than us in terms of political stability or democracy?
    Look what happen to the Chee sibling case in Singapore, Aung San Syu Ki in myanmar and many…many more? Are we lucky we can still blog and comment here?
    We still can live our life as free as a bird and enjoy the good air around here.


  17. romerz
    Jun 04, 2008 @ 23:40:43

    Dr Hsu,

    I know I promised you I won’t ever comment on monsterball’s comments but I would like to give praise where praise is due.

    “I must increase the salaries of my workers..tomorrow…even though…we are not getting the extra profits…to do that. But suffer together…..we must. That’s my policy.”


    Despite our differences of opinions and past spats, I would like to salute you on your actions. This country needs more people to follow your noble actions.


  18. jeff
    Jun 05, 2008 @ 02:02:24

    My little japanese made car is well equipped for fuel price hike, so i am in total control of my destiny, i am not crying foul so loud. People who own big gas guzzle or own several cars need to pay what they got!!!Good for them…hahaha..


  19. steven
    Jun 08, 2008 @ 13:19:01

    Indochina is catching up with Malaysia in a very near future, the people there are hard workers and government is more concerned about economy development plan rather than the racists here care only about oppressing non malay , demanding us to adopt malay culture, custom, religion n language, n etc…if we don’t compliance, will start raising their “keris” with death threat, how to be an advance country in 2020 with racist mind set.?


  20. jeff
    Jun 18, 2008 @ 03:37:22

    Hopefully with all the negativity of government gasoline subsidy withdraw,BN can have the fund divert into measures that lessen our daily cost of living like health care, food n housing, so we “poor rakyat” can breath a bit easier. Thinking of the positive side, wish higher gas price will reduce our consumption of hydrocarbon and people will learn the lesson of conservation, hopefully we can reduce some “global warming” effecting our world today.


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