Inflation damper



The revised budget just announced has many salient points and is a better budget than the original one in dealing with the present gloomy economic situation.

The special tax relief of RM 2000 must be welcomed as it will put some much needed Ringgit  in the pockets of the middle class. As with the free 20 kg of rice to be given to hardcore poor every month.

The 3 % cut in EPF contribution by employees is more controversial, but since there is a choice for employees to opt for, it is really up to the individual wage earner to choose.

But a better way to save more money for the Rakyat is perhaps reducing GST from 6% to 4%. From April till December, the government has collected 51 billions from GST alone. That was for a period of 9 months. This is equivalent to RM 68 billion a year. Cutting 2% will probably Save the people 12 billions, which would be a much needed relief. Even with a cut of 2%, GST collected should be more than enough to cover the reduction of contribution from Petronas due to lower crude prices.

Another way is reducing further the pump price of petrol. As I have mentioned in my article Dark Clouds over the Horizon, when crude oil price was at US$60 a barrel in June last year, pump price in US was around US3.00 per gallon and in Malaysia, around RM 2.00 a liter. When crude prices fell to US$30 last month, US pump price dropped to 1.97. Going by the same rate, our pump price should be much lower around RM1.33 perhaps. Since most middle class Malaysians spend on the average a few hundred ringgit on petrol, it would go a long way to provide some relief for the cash trapped rakyat.

imageOil prices are tumbling, petrol should be much cheaper! ( photo courtesy of 

Yet another is the energy tariff. When oil or gas prices go up, our electricity tariff increases ( subjecting to government approval). So it is only logical that when crude prices have fallen so much, our electricity tariff should come down. This would provide relief not just to the working class, but to the industries and retail businesses  too.  Reduction in electric tariff will be an inflation damper; it would reduce the overhead and thus cheaper goods and services.

Another budget saver would be gradual reduction of our civil service. But I will save that to another post.