In his speech at the Oxford Islamic Center, Prime Minister Najib Tun Razak said that the oil subsidies are like opium for the national economy -- it is hard to get rid of it once you get addicted to it. Yet, in a bid to control the financial deficit, the government will take gradual steps to cut down the subsidies. The issue of social welfare must be addressed. This is already agreed by both the ruling and opposition parties. But the endeavors of implementing the social welfare policy require rational and proper plan, rather than passionate slogans.
Minister of Domestic Trade, Cooperatives and Consumerism, Ismail Sabri Yaakob also said recently that the government will review the prices of the RON95 petrol and other oil products next month. As a result of the international crude oil price hike, the government's subsidies on petrol have risen from 11 billion Malaysian ringgit ($3.63 billion) to 18 billion ringgit ($5.94 billion). There is no sign that the crude oil price will drop in the near future. Should the government raise the oil price, will other aspects of social welfare be affected? Various signs show that the issue of social welfare is going to be in the core of the public policy debate between the ruling and opposition parties in the future. Thus, its impacts on the political and economic development of Malaysia are not to be overlooked.
Economic Development
In the light of the economic development and the improvement of the people's incomes, it is necessary for the government to implement various social welfare measures at the right time and gradually step up the care for disadvantaged groups. However, social welfare is not free lunch. It is difficult to amend or remove once the policy is implemented. Therefore, the authorities must handle the issue cautiously. Since all expenses of the government come from the taxpayers, the government must plan carefully and spend within its means. The budget on social welfare might be disproportionately low and unequally distributed in the past. This should be reviewed and adjusted appropriately.
Nevertheless, judging from the current reality, various social welfare measures must not be implemented all at the same time. Otherwise, the problem of financial deficit will surely deteriorate further. If the authorities fail to deliberate the issue from the perspective of the financial reality, whatever promises it makes will turn out empty promises at the end of the day. If the government insists to implement those measures beyond its financial capacity, it will eventually jeopardize the public funds and our future generations will be forced to suffer the consequences. We must take caution in this issue.
Social Relief and Social Security
In general, social welfare can be categorized into social relief and social security. The former is mainly to help disadvantaged groups in the society maintain the minimum standards of living and is usually funded by the government. Whereas on the matter of the social security, the public share out the risk collectively based on the principle of self-sustaining. Yet, the social security fees have been relatively low in the past and any losses the relevant body made were compensated by the allocation from the government. The social security scheme has essentially become like a type of social relief. Under such circumstances, introducing and implementing new social welfare measures will definitely greatly affected the state finance.
Over the past few years, the government has tried hard not to raise the tax rates or to adopt tax cut measures. Meanwhile, the economy has just begun to recover. Thus, the actual revenue has been limited. At the same time, the government's nonproductive expenditure has soared continuously and the financial situation is worsening gradually. Among others, the proportion of the social welfare expenditure in the government's total expenditure increased to 13.7 percent in the past few years. Considering that the social welfare expenditure is deemed a type of nonproductive expenditure, we are not optimistic with the budget for the year of 2012. The government recently pledged to expand the subsidies for low income households and disabled persons, which requires a budget of approximately 1 billion ringgit ($330 million). Meanwhile, the national health insurance scheme is set to start in next year and we estimate the cost of the project at about 5-6 billion ringgit ($1.65-2 billion). In addition, the government also needs to compensate the rising losses of the national insurance and social security schemes, and purchase new types of fighter jet and arms. We estimate the government's running expenses will increase about 20 billion ($6.6 billion) due to the factors mentioned earlier. At this moment, though necessary, a reasonable tax hike policy may trigger public grievances, especially considering that the general elections may arrive any time soon. Some officials have suggested cutting down the oil subsidies to support the social welfare expenditure. Theoretically, this suggestion is in line with the basic principles of the government's financial management since the 300 ringgit ($99) subsidy for each poor household is indeed meager. However, the implementation will definitely meet all sorts of obstacles. For instance, some political parties have voiced out their objection against the cut of oil subsidies.
Social Welfare Schemes
It is learned that the Subsidy Rationalization Lab Open Day introduced last year had proposed some relief measures such as cash rebate in a bid to relieve the people's economic burden. The concrete details of the measures are not announced yet. Should the government decide to raise the oil prices in the coming months, other necessities of people's livelihood may also follow suit then. The cash rebates may not be enough to rescue the situation. In this year alone, the value of the subsidies to be born by the government already amounts to 23 billion ringgit ($7.6 billion). The government has to implement the subsidy cut. Otherwise, the corporate sector will see a rise in the labor cost and our competitiveness against other countries will decline substantially. This may lead to another wave of corporate migration. The economic growth will slow down while the unemployment rate will rise. We should take warning from the painful experience of the United States and Western Europe in the past three to four decades.
US President Barack Obama vowed to "tame the monster of health insurance" on assuming his post. He finally made it. The health care reform is an important result during his tenure. The Western countries will also start to cut down their unemployment subsidies, maternity subsidies and other social welfare schemes to bring down the public dependency on the social welfare system. This is a tough but right path. The experience of these developed countries should serve as an alert to Malaysians and the Prime Minister's recent statement about cutting down the subsidies certainly worth pondering. Therefore, we call on the people to reduce their dependency on the government subsidies and let us start from reviewing the price of the RON95 petrol!
Minister of Domestic Trade, Cooperatives and Consumerism, Ismail Sabri Yaakob also said recently that the government will review the prices of the RON95 petrol and other oil products next month. As a result of the international crude oil price hike, the government's subsidies on petrol have risen from 11 billion Malaysian ringgit ($3.63 billion) to 18 billion ringgit ($5.94 billion). There is no sign that the crude oil price will drop in the near future. Should the government raise the oil price, will other aspects of social welfare be affected? Various signs show that the issue of social welfare is going to be in the core of the public policy debate between the ruling and opposition parties in the future. Thus, its impacts on the political and economic development of Malaysia are not to be overlooked.
Economic Development
In the light of the economic development and the improvement of the people's incomes, it is necessary for the government to implement various social welfare measures at the right time and gradually step up the care for disadvantaged groups. However, social welfare is not free lunch. It is difficult to amend or remove once the policy is implemented. Therefore, the authorities must handle the issue cautiously. Since all expenses of the government come from the taxpayers, the government must plan carefully and spend within its means. The budget on social welfare might be disproportionately low and unequally distributed in the past. This should be reviewed and adjusted appropriately.
Nevertheless, judging from the current reality, various social welfare measures must not be implemented all at the same time. Otherwise, the problem of financial deficit will surely deteriorate further. If the authorities fail to deliberate the issue from the perspective of the financial reality, whatever promises it makes will turn out empty promises at the end of the day. If the government insists to implement those measures beyond its financial capacity, it will eventually jeopardize the public funds and our future generations will be forced to suffer the consequences. We must take caution in this issue.
Social Relief and Social Security
In general, social welfare can be categorized into social relief and social security. The former is mainly to help disadvantaged groups in the society maintain the minimum standards of living and is usually funded by the government. Whereas on the matter of the social security, the public share out the risk collectively based on the principle of self-sustaining. Yet, the social security fees have been relatively low in the past and any losses the relevant body made were compensated by the allocation from the government. The social security scheme has essentially become like a type of social relief. Under such circumstances, introducing and implementing new social welfare measures will definitely greatly affected the state finance.
Over the past few years, the government has tried hard not to raise the tax rates or to adopt tax cut measures. Meanwhile, the economy has just begun to recover. Thus, the actual revenue has been limited. At the same time, the government's nonproductive expenditure has soared continuously and the financial situation is worsening gradually. Among others, the proportion of the social welfare expenditure in the government's total expenditure increased to 13.7 percent in the past few years. Considering that the social welfare expenditure is deemed a type of nonproductive expenditure, we are not optimistic with the budget for the year of 2012. The government recently pledged to expand the subsidies for low income households and disabled persons, which requires a budget of approximately 1 billion ringgit ($330 million). Meanwhile, the national health insurance scheme is set to start in next year and we estimate the cost of the project at about 5-6 billion ringgit ($1.65-2 billion). In addition, the government also needs to compensate the rising losses of the national insurance and social security schemes, and purchase new types of fighter jet and arms. We estimate the government's running expenses will increase about 20 billion ($6.6 billion) due to the factors mentioned earlier. At this moment, though necessary, a reasonable tax hike policy may trigger public grievances, especially considering that the general elections may arrive any time soon. Some officials have suggested cutting down the oil subsidies to support the social welfare expenditure. Theoretically, this suggestion is in line with the basic principles of the government's financial management since the 300 ringgit ($99) subsidy for each poor household is indeed meager. However, the implementation will definitely meet all sorts of obstacles. For instance, some political parties have voiced out their objection against the cut of oil subsidies.
Social Welfare Schemes
It is learned that the Subsidy Rationalization Lab Open Day introduced last year had proposed some relief measures such as cash rebate in a bid to relieve the people's economic burden. The concrete details of the measures are not announced yet. Should the government decide to raise the oil prices in the coming months, other necessities of people's livelihood may also follow suit then. The cash rebates may not be enough to rescue the situation. In this year alone, the value of the subsidies to be born by the government already amounts to 23 billion ringgit ($7.6 billion). The government has to implement the subsidy cut. Otherwise, the corporate sector will see a rise in the labor cost and our competitiveness against other countries will decline substantially. This may lead to another wave of corporate migration. The economic growth will slow down while the unemployment rate will rise. We should take warning from the painful experience of the United States and Western Europe in the past three to four decades.
US President Barack Obama vowed to "tame the monster of health insurance" on assuming his post. He finally made it. The health care reform is an important result during his tenure. The Western countries will also start to cut down their unemployment subsidies, maternity subsidies and other social welfare schemes to bring down the public dependency on the social welfare system. This is a tough but right path. The experience of these developed countries should serve as an alert to Malaysians and the Prime Minister's recent statement about cutting down the subsidies certainly worth pondering. Therefore, we call on the people to reduce their dependency on the government subsidies and let us start from reviewing the price of the RON95 petrol!
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