Subsidy cuts could mean price hikes

Monday, May 16, 2011

PUTRAJAYA: Deputy Prime Minister Muhyiddin Yassin has not come outright and said it but all indications are that there will be price hikes on essential items.
He said that the subsidy burden is expected to double this year from RM10.32 billion to RM20.58 billion.

Muhyiddin said that hefty subsidy costs is taking a toll on the government and that it could not bear the costs. This could be an indication that the government is preparing the public for more cuts.

“The government has continued with its subsidy programme but we cannot continue sustaining the same amount. We have ways to reduce subsidies like the increase in sugar price. We are doing it (subsidy reduction) in stages,” he told reporters here.

“We cannot guarantee there will be no increase in the prices of goods. We cannot control the prices but where the government can intervene to decrease public burden, then we will,” he added.

Escalating public debt and a record budget deficit have forced the Najib administration to reduce subsidies on several basic items like fuel and sugar already undergoing subsidy cuts.

However, rising cost of living and low wages have put pressure on Prime Minister Najib Tun Razak to channel more funds into existing subsidies.

Observers say potential voter backlash over escalating cost of living has given the opposition more ammunition, forcing a delay in subsidy cuts .

Najib said recently the government is willing to fork out an additional RM4 billion in addition to the RM10 billion allocated for subsidies this year.

Subsidies will be one of the major issues the Najib administration will have to deal with as it gears up for the coming general election.

Difficult position

Price hikes would put the Barisan Nasional (BN) government in a difficult position and would likely have an adverse impact on the voters. But Muhyiddin’s statement suggests that the Najib administration is ready for more cuts.

“Subsidy costs have doubled from RM10.32 billion in 2010 to an estimated RM20.58 billion in 2011. Some RM18 billion alone is to subsidise the petroleum-related sectors.

Najib’s government has tried hard to allay public fear by giving assurances that inflation would be kept in check, but Malaysian salaries are not keeping up with the steadily rising cost of goods.

Subsidy cut on fuel was one of the major factors that contributed to BN losing control of five of the 13 states to Pakatan Rakyat in the 2008 general election, according to a Bloomberg report.

The report also noted that voters and investors are waiting for Najib to deliver on pledges to transform the country into a “high income” nation by 2020, narrow the budget gap and ensure preferential economic policies benefiting the Malay majority are extended to the poor of other races.


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