KL cuts subsidies again

Malaysians will pay more for petrol, diesel, cooking gas and sugar from today.

The government raised prices as part of efforts to phase out subsidies gradually and reduce its hefty budget deficit.

This is the second wave of price hikes in five months, as the ruling coalition continues its delicate balancing act of reforming its stuttering economy without overly upsetting the public.

The latest round of subsidy cuts will save the government RM1.18 billion (S$490 million), said Minister in the Prime Minister’s Department Idris Jala.

Last year, Malaysia spent a hefty RM74 billion on subsidies, as the nation’s deficit soared to a 22-year high of 7.4 per cent of gross national product.

Prices of 95-octane petrol and diesel go up by 5 sen, to RM1.90 and RM1.80 per litre respectively. The price of liquefied petroleum gas (LPG) increases from RM1.85 to RM1.90 per kg.

Sugar costs more too, from RM1.90 per kg to RM2.10. Earlier this week, the price of 97-octane petrol was raised by 15 sen.

The relatively small hikes reflect how cautiously the government is dealing with this touchy issue. Cutting its hefty subsidy bill has long been seen as a necessity in reforming Malaysia’s economy. Subsidies eat up 4.7 per cent of the country’s gross domestic product a year, keeping its food and petrol prices among the lowest in the region.

But the government has refrained from drastic cuts so far, for fear of sparking a public backlash just when it is beginning to consolidate its support from two recent by-election wins.

In 2008, its sudden announcement of plans to raise petrol prices by almost 40 per cent caused widespread anger and public protests, forcing the government to quickly reverse its decision.

A government think-tank had initially suggested increasing the price of 95-octane petrol by 15 sen, but the government increased it by only 5 sen in the first wave of price hikes in July.

Yesterday, Mr Idris took pains to stress that July’s price hikes did not affect consumers adversely, as inflation remained below 3 per cent.

Explaining the latest increases, he said: ‘Oil prices have been rising. What we are doing here is to reduce the level of subsidy. But actually we still have to pay a lot of money as a result of the increase in crude oil prices.’

He declined to say when the next round of subsidy cuts will take place.

The cuts have already triggered attacks by opposition politicians, who argue that the poor are the worst hit each time prices go up and they feel the effect immediately. The opposition politicians have long maintained that there are other more urgent issues to tackle, such as cutting government wastage.

‘There’s nothing wrong with cutting subsidies in the long run,’ Democratic Action Party MP Liew Chin Tong said. ‘But it’s the wrong priority at this stage.’

The price hike in July was met with a fairly subdued reaction from the public because of the relatively small rises.

It remains to be seen what the response this time will be, but Mr Liew warned that small price hikes would mean constant increases in the coming years.

The latest round of price increases inadvertently also douses speculation that snap polls will be called in the next few months.

Straits Times