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Hi There (November 2013): Malaysia's Subsidies

Last month, our Group Editor, Chad, wrote about the subsidies in Malaysia and the long-term risks associated with leaving them in place. It remains a big problem for Malaysia since a significant part of the country’s annual budget goes towards subsidies.

The real problem is that the bulk of the expenditure on subsidies actually benefits wealthier families, and only a relatively small portion ends up helping the low-income group.

Wealthier people have a lot more money to spend on these items, and the number of desperately poor families who truly need the lower prices is relatively small. There is no question that when it comes to fuel subsidies, the wealthier people, with their big-engine cars, use the most petrol. Expats, who very rarely fall into the lowest income bracket, also receive the benefit of subsidies, which were certainly not intended for them.

Currently, the Malaysian government spends over RM30 billion a year subsidizing a range of items including petrol, diesel, sugar, flour, and cooking gas. In 2010, the government came up with a plan to eliminate subsidies on fuel by 2015. This involved reducing the subsidy on petrol and diesel by 10 sen every six months until the price reached market levels in 2015. It planned to reduce the hardship this would cause lower income families by giving a cash rebate to people with smaller motorbikes and cars with engines under 1000cc. This seemed to make a lot of sense, but knowing how unpopular rising fuel price is with Malaysians and with impending elections, the plan was not implemented.

Now that Barisan Nasional is back in power, they are keen to address this long outstanding issue, not least because it is their aim to balance the government budget by 2020. Currently, the budget deficit runs at a rather high 4.5% of GDP and the national debt has risen to over RM500 billion which has some people very concerned. With subsidies taking up nearly 20% of the government’s annual expenditure clearly it would make sense to dramatically cut this cost. In addition the oil supplies, which generate a lot of revenue for the government, are being depleted and Malaysia is moving closer to being a net importer of oil.

Even when this is all worked out, we do not expect Malaysia to suddenly become one of the world’s most expensive places. The Economist Intelligence Unit recently ranked Singapore as the sixth-most expensive city in the world for expats to live so Malaysia has a long way to go to reach those levels.

For those expats who enjoy subsidies or just having fun, then make sure you try out our monthly wine dinners or Mingle evenings, in both KL and Penang. They are all subsidized events and offer great value. We are about to launch the new TEG Card which is designed for expats who enjoy coming to these events. They and their guests will receive special discounts at any events where we charge an entrance fee. They will also get an advance e-mail advice of all events and it will include some very attractive offers on various products and service including restaurants, bars, and hotels.

Have a great month.

Source: The Expat November 2013

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