KUALA LUMPUR (Oct 16): Former finance minister II Datuk Seri Johari Abdul Ghani has proposed that the government adopt cash transfers for the implementation of targeted subsidies.
Citing as example the government's decision to remove the price cap on chicken and eggs, Johari suggested that in the event of future increases in chicken and egg prices, the government could implement a direct cash transfer method to targeted low-income households, rather than recapping the prices of poultry.
"When the government sets an unreasonable ceiling price each time we face a supply shortage, industry players are discouraged from continuing their businesses as they incur losses. While the government subsidises the prices, sometimes these subsidies don't reach the industry players due to leakages," said Johari, who is the Titiwangsa Member of Parliament, during the debate on Budget 2024 in the Dewan Rakyat on Monday.
Therefore, Johari believes that cash transfers are the best method to prevent manipulation, and ensure that the subsidy is directed to the intended households, and industry players.
"The government's reaction to price increases always makes the industry players feel victimised. What the government needs to do is adjust the ceiling price according to market trends, while simultaneously assisting low-income families with cash transfers.
"With this approach, industry players can continue to grow, the government can collect taxes, and workers can keep their jobs. The impact will be much more significant than the government's continued bulk subsidies," Johari said.
While tabling Budget 2024 last Friday, Prime Minister Datuk Seri Anwar Ibrahim, who also serves as the finance minister, announced the lifting of temporary price controls on chicken and eggs to enable the local market to function freely, as price trends have been stabilising — with current market prices now below the ceiling prices — to ensure the availability of chicken and egg supply in the market.
Meanwhile, Johari expressed his support for the government's implementation of targeted subsidies, as he noted that the government spent a total of RM45.18 billion on petroleum product subsidies last year, which was four times higher than the allocation for Sumbangan Tunai Rahmah (STR), totalling RM10 billion.
"We are spending more on subsidies, which are not specifically targeted for fuel. If the government can save half the cost of fuel subsidies, they can increase the allocation for cash aid — for instance, STR.
"We can increase [STR] by almost three times if we switch from blanket to targeted subsidies. If a household is currently receiving RM300, the government can increase it to RM900, ultimately encouraging consumption and having a multiplier effect on the economy," Johari said.
However, Johari suggested that the government implement targeted subsidies gradually over a period of five to 10 years to avoid leading to a spike in inflation.
Subsidy spending on par with entire oil returns, needs to be addressed
The current subsidy mechanism, he said, is flawed to the point where its levels could deplete Malaysia's oil revenue, leaving the country's oil-related savings behind peers that started their oil funds later than Malaysia.
"In 2022, Malaysia's subsidy was RM77.3 billion or 26.3% of federal government revenue. Petronas paid RM50 billion dividends; we collected RM19 billion from Pita (the petroleum income tax), and RM6 billion in royalty.
"Just imagine, Petronas paid RM75 billion, and it was entirely used on subsidies. If it reached the targeted groups, it's okay.
"We have a sovereign fund, KWAN (National Trust Fund), that we set up in 1988 to save the oil royalty; now we only have US$4.7 billion (RM22.26 billion) in it. Norway is also an oil producer. It established its fund in 1990. Today, it has US$1.15 trillion.
"Timor Leste established its fund only in 2005; now it has US$17.7 billion," Johari said.
"We are a rich country. But for the money we collected, our subsidy mechanism, banyak yang tak kena (a lot was not done right). At the end, if we continue to do this, we will face a situation where we do not have any other solution, but to continue to depend on Petronas dividends," Johari added.
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