Fuel subsidies are inefficient and waste of government resources, says RAM

by **Cals** Tue 22 Oct 2013, 12:13

Business & Markets 2013

Written by Bernama

Tuesday, 22 October 2013 11:51

KUALA LUMPUR (Oct 22): Fuel subsidies are inefficient, unproductive and a waste of government resources, says RAM Holdings Group Chief Economist, Dr Yeah Kim Leng.

He said this is because the inefficiency leads to smuggling and other illegal activities.

"An example would the recent success of Kedah's Anti-Smuggling Unit which foiled an attempt to smuggle 27,300 litres of subsidised diesel worth RM54,600 to Thailand.

"By lowering prices, subsidies discourage consumers from becoming more prudent in spending, as well as proactive in conserving energy.

"The subsidies are also wasteful as the government could have used the estimated RM24 billion spent on it this year to reduce the fiscal deficit.

"It could also have invested in productive, growth-promoting and employment creating activities such as education, health, infrastructure and entrepreneurship development projects," he told Bernama.

Yeah said the size of the government debt is approaching the ceiling of 55 per cent of gross domestic product (GDP).

"If there is no reduction in subsidies, the government has to cut spending in other areas such as defence, education, health and social programmes.

"Most general subsidies on food such as sugar, flour and rice can be eliminated and replaced with a well-designed and targeted food or income support programme for the lower income group," he added.

He said the fuel subsidy basically shields consumers from rising world energy prices.

This is through the government subsidising the difference between the higher world market price and what consumers pay at the pump or purchase a gas tank for cooking.

"The subsidy therefore helps consumers cope with the rising price of energy in various forms.

"With lower prices, consumers can either save the difference or spend on other items and overall, the subsidy helps the economy in lowering the inflation by absorbing the oil price shocks," he added.

The government recently introduced new prices for RON95 petrol and diesel as part of its subsidy rationalisation measures. --BERNAMA