Thursday, June 10, 2010

Debt and Subsidies Clarified

What with the brouhaha over the actual amount of subsidies being paid, and the actual amount and definition of “national debt” as reported yesterday, PEMANDU felt it had to step in with clarification (in full from The Star):

Subsidy figures are correct, says Pemandu

PUTRAJAYA: Both sets of subsidy figures released by the Treasury and the Performance and Delivery Unit (Pemandu) are correct, the unit said in a statement.

It said the Treasury had only focused on direct subsidies because it took a public finance management approach in defining subsidy while the Pemandu lab had taken a macro-economic approach.

“The approach includes both direct and indirect subsidies as a necessary measure to increase competitiveness and remove market distortions,” it said here yesterday.

The Treasury had on Tuesday in a briefing to backbenchers announced total subsidies at RM18.6bil last year while Pemandu’s lab findings put the figure at RM74bil.

The unit said the definition of subsidy by Pemandu’s lab was based on that provided by the Organisation of Economic Co-operation and Development (OECD) in 1996.

“Some of these subsidies include contract obligations, financial support and rebates, assistance to Ministry of Finance Incorporated companies, and cost-based financial assistance which includes emolument for education and health.

“The substantial items under indirect subsidies which are not covered by the Treasury include cost-based financial assistance, assistance to MoF Incorporated companies and gas subsidy. “The subsidies defined by the Treasury are those which affect the Federal Government balance sheet directly,” it said.

The unit reiterated that as a gross domestic product (GDP) percentage, Malaysia continued to be one of the highest subsidised countries in the world, even higher than Indonesia and the Philippines.

“On average, the OECD subsidy level is 1.5% of the country’s GDP. Both the Treasury and Pemandu agree that Malaysia should increase its revenue or GDP and at the same time, reduce government expenditure in the next 10 years in order to stay competitive,” it said.

The unit said the Government would also continue to fight corruption, reduce wastages and leakages based on the Auditor-General’s report to reduce overall expenditure besides removing subsidies.

It said it also wished to clarify that the country’s national debt stood at RM234bil, which is defined as external debt and inclusive of both public and private debt.

“Our government debt stands at RM362bil, comprising domestic debt (96%) and foreign debt (4%).”


  1. So, when caught by the short and curlies, the MoF comes out with the usual cop out:

    "Both are correct!"

    That can only be true if Govt has no control over the likes of Tenaga, Petronas, Telekom, Maybank and other GLC's through Khazanah, PNB, EPF, Socso, Mavacp etc..

    The reality is every Govt and its People make a choice of what to subsidise, how much and for how long - education, health, infra, social welfare, tech start-ups, special low interest subsidised loans, tax breaks, pioneer status and capex allowances etc.

    If acoounted for properly, I would wager that Jala's $74 billion, which is actually the more correct figure for subsidies in the M'sian context, is grossly understated!!

    The MoF will however go on with its APCO-led spin, trying to fool all the people all the time with its head buried neck-deep in sand like the proverbial ostrich!!

    we are all of 1 race, the Human Race

  2. Considering they're a bunch of accountants, did you expect anything more? :)

  3. How could PEMANDU include salary for teachers and doctors as subsidy items?

    Its called social obligations of the Government, not subsidy.

    Might as well PEMANDU include all expenses on roads, rural infrastructure etc as subsidy.