Friday, July 23, 2010

First round of cuts

The Star Online
Friday July 16, 2010

PETALING JAYA: The Government has begun its first round of a gradual subsidy rationalisation programme, promising it would have minimal impact on families.

Describing the cuts as part of a “difficult but bold” decision to reduce fiscal deficit, the Government said it would still have to spend an estimated RM7.8bil on fuel and sugar subsidies this year.

Thus, effective today, prices of petrol, diesel, liquefied petroleum gas (LPG) and sugar have increased following a reduction of the subsidy.

Sugar is revised to an additional 25 sen per kg to RM1.90. LPG is up 10 sen per kg to RM1.85.

Petrol RON 95, RON 97 and diesel have gone up by five sen per liter. For RON 97, the Government has decided to withdraw the subsidy later and subject it to a managed float, where the price will be determined by an automatic pricing mechanism.

“This subsidy rationalisation will, according to estimates, allow Malaysia to reduce Government expenditure by more than RM750mil this year,” a statement from the Prime Minister’s Office said yesterday.

Details of the changes are available on the websites of the Prime Minister’s Office and Pemandu.

The Government also said the “long-needed” economic reforms would help Malaysia maintain the strong growth it had achieved to become a developed and high-income nation.

“We have begun a planned and fair reform of a subsidy regime that for too long has been ineffective in helping those who need it most and, over time, has become a barrier to Malaysia’s progress,” the statement read.

The prices of fuel and sugar in Malaysia would still be among the lowest in the region, it said.

It also said the Government made the decision about the subsidies following robust consultations with the people, citing the thousands of Malaysians who took part in policy labs and Open Day.

“As with subsidy reform, the Budget, the Government Transformation Programme and the National Key Economic Areas, the Government has made a determined effort to engage the public, listen and learn, and then act in the best interest of the nation,” it said.

Although Malaysia had weathered the global recession well, the Government said the country could not achieve its ambition to be a high-income nation by simply managing through a crisis.

“As the Government has consistently said over recent months, we must also implement subsidy reforms that will remove distortions in the marketplace and enable us to better target our resources on those most in need, and on investments that will provide lasting benefits for Malaysians.”

It assured that the savings from the reforms would allow for resources to be better channelled for families, communities and business growth.

“Measures such as the 1Malaysia clinics, the 1Malaysia mobile clinics, as well as the scholarships for all 9A+ and deserving students – specifically those who have done well, but come from lower income families – are made possible by such reforms,” it said.

There were three main concerns which led to the subsidy rationalisation: wrong beneficiaries, wastage and abuse.

The Government also said that businesses used twice as much subsidised sugar than households, while owners of luxury cars enjoyed cheap fuel although they could afford unsubsidised prices.

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