Friday, November 21, 2014

Bye-Bye Fuel Subsidies

The Government has had an outbreak of common sense (excerpt):

Hasan Malek: No more RON95 petrol, diesel subsidies from Dec 1

PUTRAJAYA: All subsidies for RON95 petrol and diesel will be stopped beginning Dec 1, said Datuk Hasan Malek.

The Domestic Trade, Cooperatives and Consumerism Minister, who announced this at a press conference here on Friday, said the retail prices for RON95 petrol and diesel will be fixed according to a managed float, similar to the mechanism dictating the RON97 petrol price.

Hasan said there would be an announcement at the end of each month to set the following month's fuel prices.

He said it would be determined based on a monthly average price….

There’s still the super-subsidy on diesel (for public transport and fishermen) and subsidies on natural gas (which are huge), but the latter has been starting to be phased out as well. The gas subsidy in particular has been prone to abuse, with businesses using gas cylinders intended for households.

In any case, we’re well rid of the dangerously complicated multi-income-tier subsidy idea that the government has been mulling over. With global oil prices so low – for November, it appears that consumers have actually been paying a small tax on petrol – there would have been no better time for this move to have been made. We had that opportunity once in 2009-2010, and missed the chance. I’m happy it wasn’t missed this time.

If global oil prices stay low, and this is the scenario market participants are looking at at least for the next couple of years, then well and good. If prices move back up, then the government will no longer have to bear the cost of subsidising petrol and diesel, and use the increase in revenue on something more important – like public transport for instance, or education, or *gasp* paying down debt.

Having said that, we’re still not home free. Prices going forward will still fall under the Automatic Pricing Mechanism, which means profit margins are guaranteed for distribution and retailing. Oil retailers in Malaysia have been used to competing on a non-price basis; that’s not necessarily the optimum for consumer welfare. The next step should be to free up the market, and let the oil companies compete on price. That should give back to consumers some of the welfare loss associated with being exposed to global oil price volatility, essentially sharing some of the risk with producers.

I know, I’m asking for the sky. Still, I’m pretty happy with the decision today. It’s been a very long journey over the last five years.


  1. I've been trying explaining to others why this fuel subsidy is hurting our economy. But they just can't seem to grasp the reality behind it. All they know is no subsidy=increase fuel price. Increase fuel price=suffering. Smh

  2. Please don't give up AnggaPra and along with hishamh thank you for your efforts. God knows the country is in a panic right now & the country need the likes of you lot to go forward.

  3. @ AnggaPra, HishamH and their ra-ra boys..Keris et.l .

    Now I want you forward looking, long thinking, deep navel gazing macho wonk hunks to ferret out, tar and drive outta town every skulking subsidy in the system, from subsidized health care and education to subsidies for SMEs , industry and the like...yeah...even that 5% discount ruling on property prices...EVERY subsidy any crotchy chick hawks wants to slay. Game for it, boys? Do it pronto, will yah?

    RON 95 subsidy removal...APM .....float blah blah blah ....look at what happened for so long to RON 97 and figure that one out...hahahaha

    And the price of sugar on world marts has dropped 50% and we get salty prices still.And pray why tyres are still where they are given both rubber and oil have plummeted.

    Subsidy removal..more efficient market determined prices. Well, the MARKET just spoke on behalf of sugar, RON 97 and everything in between.

    And it says "Read my lips...I am ALWAYS talking crap"hahahahaha

    Warrior 231.

    1. @warrior,

      You're absolutely right. You are taking crap. Why on earth would we want to give up subsidised healthcare and education - which have positive externalities for growth and development - as opposed to fuel prices, which impose decidedly negative externalities?

    2. And pray Master Hisham, where did I say I was talking crap? I said the market talks crap.O wise One,please enlighten me as to where?

      Positive externalities from education and health butt!. Since when those two were deemed positive when all they yield are unemployable graduates and foster lifestyle diseases.

      The notion of subsidising education on the grounds that it has positive outcomes on growth and development is equally crap by itself given that subsidised education paradises like Indonesia, Philippines, Bangladesh etc have yielded their respective countries qualified doctors,pharmacists, engineers etc who are toiling as farmhands, rickshawmen, street peddlers and cheap factory labour in far off lands.....hahaha.

      Jump off your high horse dude before it throws yah off onto the scrapheap of theory. And do come up with something pithier,man.

      Notwithstanding one of the snarkier responses in there, I hope the link below adds to everyone's yeducation...yes...yeducation....hahahaha

      Warrior 231

  4. hello
    just want to know. is it a good choice to buy home/shop lot during this period of time .

    1. @anon 10.05

      Depends on your investment horizon. If you're planning to keep for retirement, I think that's fine. Don't bet on short term gains though - property market is really tough right now.

  5. hisham..explain more on this..please

    1. @anon 5.20

      Try here, especially some of the older posts.

  6. I doubt it is a common sense thing. I think its more a knee jerk reaction to the latest Fitch thingy:

    plus it could be due to this upcoming IPO, u know adopting a "tails twixt legs" stance can be "reassuring" to prospective investors:

    Whatever it is, granted that subsidies are economically inefficient...any proposal to dispense with it would only make sense if you have a "tarp" underneath before yanking the whole thing away...unless you are warped enough to willfully desire tanking consumption and by default, throttling the economy for some perverted cheap thrills. That is what Abe did with his tax hike , repeating the very same mistake Ryutaro Hashimoto committed 17 years back in 1997:

    What ever, I also wish all this "let the market decide or the market is an efficient arbiter or subsidy removal is a precursor to more efficient allocation of financial resources" would just be flushed down the toilet which is their rightful resting place.

    Fact of the matter is governments all over the world are hooked on subsidies one way or another, even purportedly free mart chumps:

    1. Singapore introduced the Wage Credit Scheme (WCS) in which the government will co-fund 40%
    of wage increases for low-income Singaporeans

    and that is just one example of many!!! would think that Hayek, von Mises and people like Ayn Rand are alive and kicking heartily when morons bray about free marts, market forces etc without understanding the actual dynamics. Fact is reality screams otherwise...there is no such thing as a free market anymore as any true blue libertarian would vouchsafe. There are manipulated markets; rigged marts alright but no free markets in the true sense of the word hence....terms like efficient/rational markets are essentially dead ducks in the water just like "effective demand" is as Greenspan avers.

    But all such crap talk from self styled enlightened trolls is not surprising emanating as it is, from the same quarter, you know, those pathetic anti affirmative action racist trolls who don't have the phallic muscles either to even raise a pip squeak about the stuff like the one linked below when they bleat like bitches in heat about TPP or FTAs ad nauseum :

    Shinzo Abe, Japan’s prime minister, has promised to protect “sacred cows” — including rice, beef and dairy — from the deal. Rice carries an almost spiritual significance here, not to mention a 778 percent tariff.

    You see "free markets" "market forces" "rational markets" be damned when pragmatic politics and national interests come into the pix.

    Warrior 231

  7. One problem... the minimum wage should increase for us to be at par with the world.

    1. @anon 9.35

      A review is apparently under way - the NWCC is mandated to do one every two years. My information is that there won't be a full revision this year, only a change to the rate in Sabah and Sarawak to bring it closer to the Peninsular level. I agree, we need to an upward revision, but apparently some SMEs won't be able to stay in business with another hike.

  8. If we want to follow the world like paying higher taxes, no subsidies, etc ... that is fine. But minimum wage should increase... RM820 is quite low

    1. @anon 9.38

      Actually, I believe it's RM900. Compared to the numbers I've seen, trust me, RM900 is a big deal and a massive improvement.

  9. No big deal, dulu kena govt duty lagi. Bila world price rendah, gomen shud charge duty. Yg pelik nya masa minyak naik dulu banyak barang naik tapi sunyi aje bila minyak nak turun ni......

    1. @anon 10.13

      Problem is wages have increased in the meantime. Cutting prices now would cut business profits too much...apparently.

  10. My oft-repeated argument is that education and public health care should be the only sectors to be "subsidised".

    Previously, I would have included public transport, but getting inefficient bureaucrats involved in a subsidised public transport sector is a recipe for boondoggles, if not failure.

    Why should food and fuel be subsidised? Are the "market prices" of food items and fuel going to change because the government is willing to throw millions and billions of ringgit into subsidies?

    To put on my proletarian hat, why should the so-called "One Percenters" pay the same prices for food and fuel as the plebes and proles?

    Let's get with hardheaded basic economic facts and do away with nostrums such as "managed floats" etc!

    1. I agree with you wholeheartedly except on one point.You see, I view the function of the state to be primarily and solely concerned with the defense of the realm and the preservation of law and order.

      Therefore, I propose that all subsidies be removed from all sectors, education and health included. You see, the market is an exquisitely fine tuned, rational and objective mechanism to determine price based on the principles of supply and demand. Social welfare should never peskily come into the equation.

      If the proles and plebs are unable to foot the bill, let them be damned for they rightfully deserve it for their indigence and lack of intelligence. In fact, shedding a few ringgit/dollars to educate such illiterate brutes would not be beneficial to long term interests and prosperity of the realm. Let them earn it the hard way to appreciate it more!!

      I also take offense at your cheap shot at the one percenters. I think you misunderstand the principle of equity for pray, shouldn't I, a one percenter, enjoy an exorbitant share for the exorbitant taxes I pay. What is so morally repugnant or economically inequitable about that?.

      Social welfare inclined lizards and other reptiles shouldnt bother about the proles or plebs. They should quit their hypocritical proselytizing and call a spade a spade. In short, they should leave the proles or plebs to either swim with the tide or sink and die and their loss is of no consequence to society for verily the survival of the fittest mantra is the cornerstone of naked capitalism, period. Hence,I resolutely oppose any unnatural attempt to fiddle with the natural order of things!

      In fact, we dont need to waste our time waffling, quibbling about it like some effing goddamned hypocrites for deep within ourselves, we all desire the worst for others. So I move that ALL subsidies be removed, pronto. Let market forces decide and allow the survival instinct resident in all humans to flourish.

      After all, necessity is the mother of creativity and the sooner the proles and have nots learn that maxim and take it to heart, the better.

      Warrior 231

    2. I had to rub my eyes and reread your post before it sunk in.....the man is being sarcastic!

      Way to go, Mr Onepercenter.

      After all, who gives a flying fig for the plebs and proles when it's more expedient and important to look after the onepercenters and the aristos.

      For the latter, the world is their playground. Aided by Swiss banking secrecy (maybe the Cayman Islands too), but that is looking like an increasingly endangered species these days.

      So, what to do, apart from milking the system for all you can get (and get away with)?

  11. @warrior

    What happened to you dude? You used to come up with some really good comebacks that had me scrambling. These past few months your arguments have been seriously weak. Yes, an IQ test might be worth the trouble.

    Hit to consumption? Do you realise that for the past three weeks, you've been paying tax on petrol?

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