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Wednesday, June 18, 2008

Keep Oil Subsidies, Charge Windfall Tax for Commodities Companies


X also told me that if we keep the subsidy, we will bankrupt the country in the future. I replied that we want to prevent bankruptcy of the nation in the future, we bankrupt millions of families now? Is that the BN’s genius way of running the economy? X didn’t answer. My conversation with X actually confirms the mindset of Barisan Nasional when it comes to running the country’s finances: distribute all costs with among the people, distribute all profits among cronies.

Very recently, I had a long debate over a chat session with an acquaintance who is close to the establishment. It seems that my acquaintance, name X, is very supportive of the removal of subsidy on the count that subsidies are viewed as wastage and should be channeled to better avenues, i.e. infrastructure, healthcare etc.

I, on the other hand, argues that instead of removing subsides, we should instead charge windfall tax on our various commodities companies which are doing so well with the rise of international commodity prices, i.e. Petronas, Guthrie, Sime etc.

I believe, the RM56billion can easily be recoup with the windfall taxes. After all, the same idea is being floated by the Democrats in US Congress. Except windfall tax will not work in America considering the price of oil is not regulated there. We, in Malaysia, regulate our prices making windfall taxes a great way to cover up for the subsidy.

Besides, isn’t our commodities companies are getting bumper crops due to rising demand for commodities in the world market. Check out the International Herald Tribune report “Commodities are 'saving grace' as Malaysian exports jump 13.2%”. Suffice to say, the article says that commodities causes Malaysia’s export to rise despite drop in export in E&E.

Then I question X, why is the government dragging their feet in imposing windfall taxes on companies that’s making billions out of the people’s commodity? Is it because these commodities companies are cash-cows for UMNO and UMNO leaders? He didn’t give any answer.

In fact, allow me to quote KSC, commenter #11 of the article "Summary of BN’s Wastages That Rakyat Have to Pay For":

“May i add the Putrajaya township where the justification to built it were to reduce expenditure from renting in KL but now the goverment need to pay rent to Putrajaya Holding costing millions rm per year, F1 team sponsorship since sauber now BMW, Petronas GP, the then Petronas TVK motoGP team, BBJ businessjet and Airbus A319”

Thus far, all of the cost cutting measures adopted by Pak Lah and the BN is a joke. The real fat is not trimmed.

I also told X, from all of my readings, economists do not really advocate abrupt and empty removal of subsidies. The best way to reduce subsidy is by reducing demands. In the context of Malaysia, it should take the form of providing efficient and comprehensive public transportations. When there is a viable alternative, people will opt for a less oil-consumption effort will not result in suffering or impoverishing the population.

Instead, we see for the last 4 years, the BN government has done nothing significant with the public transport system. The number of commuter trains didn’t increase, the number of LRT trains remains the same, the number of LRT stations and tracks remains stagnant and many more. I am told that a ride on the commuter now from SUbang Jaya to KL during rush hour can take more than one hour because the trains are overworked and cannot operate at it’s optimum speed.

There is also no effort by the government to promote alternative energy, namely NGV. BN govt could’ve given enough incentive for the last 4 years to covert 40% of automobiles into NGV, especially freight transports. If 100% of freight transport had converted to NGV in the last 4 years, I am sure consumption would’ve gone down to a level that will make oil subsidy minimal.

Furthermore, affluent tax can be slapped on various corporations in other to force them to be energy efficient. Besides, all corporations are being taxed anyways, so why are we questioning their rights to use the petroleum at a lower rate then their intrinsic value? The corporations provide jobs and products for the people to use. So, by giving them cheaper gasoline, they can better serve the people and community. Just charge them affluent tax to make them be more motivated in optimizing usage of energy.

I questioned X, why hasn’t the Barisan Nasional adopt major cost cutting measures that will help the to increase GDP or reduce spending. For one, by cutting gas subsidy to all the major IPP’s, we can save about RM 20billion per year easily. That doesn’t take that much of a problem. Plus, TNB is already producing energy much higher than demand at the moment. They don’t need t produce electricity at the level they’re producing now.

X said that the government will institute a mean-tested system to distribute subsidies to the right people. I told him, system like this is open to abuse and distortion. In the end, the beareaucracy alone will eat up a lot of the subsidy, not to mention the abuse rendering the entire system useless. Compounding the problem is the fact that BArisan Nasional runs a corrupted and non-transparent government. There’s basically no way, the system will be implemented efficiently thus rendering the cash-distribution system useless.

The current method adopted by Barisan Nasional is to impoverish the majority of the population by making them suffer just so the government doesn’t have to spend on oil subsidies. At the same time, the government makes sure that cronies and the real wasters gets scot free and continues to practice what they’re practicing and enjoying themselves.

At the same time, they group together a bunch of economic graduates advocating economic models that doesn’t apply to our reality and conditions. Just because they graduate from OxBridge doesn’t make them smart and it sure as hell doesn’t make them right all the time.

Under normal circumstances, removal of subsidy is a good thing. But, our condition in Malaysia is not normal. Therefore, normal economic models cannot be applied to Malaysia. I strongly advocate against the removal of subsidy given our current circumstances. In the final analysis, removal of subsidy will only widen the gap between rich and the poor and it’s the poor (which is the majority) that will suffer while the top rich becomes richer.

X also told me that if we keep the subsidy, we will bankrupt the country in the future. I replied that we want to prevent bankruptcy of the nation in the future, we bankrupt millions of families now? Is that the BN’s genius way of running the economy? X didn’t answer.

My conversation with X actually confirms the mindset of Barisan Nasional when it comes to running the country’s finances: distribute all costs with among the people, distribute all profits among cronies.

Incidently, the meaning of windfall tax is as follows:

“A tax levied by governments against certain industries when economic conditions allow those industries to experience above-average profits. Windfall taxes are primarily levied on the companies in the targeted industry that have benefited the most from the economic windfall, most often commodity-based businesses.”

And we all know, Guthrie, Petronas etc are earning WAYYYYYY over their average profits. Why do they get to keep the money when the people need it more.

Tulang Besi

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