Despite the rising cost of living, Malaysia remains one of the cheapest places to live because of subsidies – which can be a burden too.
THE increasing cost of food, fuel and essential items – these are the biggest challenges facing governments around the world today as inflation climbs.
Over the past two years, the Covid-19 pandemic has hurt production and distribution while the Ukraine War has only aggravated the situation.
The United States’ decision to increase interest rates in March to stem its inflation rate of 8.5% – the highest in 41 years – has also caused repercussions around the globe.
It sent many currencies – including the yuan, yen and ringgit – tumbling, and talk is rife that the US will take stronger steps again.
These external pressures will only hurt the ringgit even more.
There is also a fear in the US that it is heading towards a recession as energy prices have increased by 32%, with gasoline up 48% and fuel up a staggering 70.1%, as a result of Russia’s invasion of Ukraine, which pushes prices higher.
The price of crude oil has remained volatile.
It tumbled to US$98 (RM427) today in reaction to weakening demands in China because of the Covid-19 outbreak there, but the price is more than likely to go up again.
Food prices in the US have reportedly jumped 8.8%, the most since May 1981.
To put it simply – everything costs more in the US now, including used cars and lorries, which have risen in price by 35.3% and 41.2%.
In contrast, Malaysia’s inflation is expected to average between 2.2% and 3.2%, according to Bank Negara Malaysia.
Malaysia remains one of the cheapest places to live and is a far cry from Singapore, which is the second most expensive city in the world, according to the Economist Intelligence Unit in its Worldwide Cost of Living 2021 survey.
Most of us get mixed up when it comes to understanding the meaning of “cost of living” and “standard of living”.
A Malaysian staying in a double-storey home with a small garden and two cars in Johor Baru, even with lower pay, will probably have a higher standard of living than his Singapore counterpart living in a tiny HDB flat.
But there is a price for the Malaysian government, or rather taxpayers, to pay for the lower cost of living.
We are among the most subsidised people in the world.
The increasing price of crude oil should be seen as a positive for a net oil and gas exporting country like Malaysia but it’s not, because most of it goes to paying for our subsidised petrol and diesel consumption.
According to a CGS-CIMB Research report, it is estimated that for every US$1 increase in oil price per barrel, the government gets some RM370mil in added revenue.
However, based on the figure of US$120 per barrel not too long ago, it will also set the government back by around RM780mil in fuel subsidies.
The subsidies on diesel and petrol for 2010 reportedly cost RM9.6bil.
In 2011, it was RM15.9bil.
On Tuesday, Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed said the estimate for this year is somewhere around RM30bil, with the subsidies involving RON95, diesel, liquefied natural gas and cooking oil.
According to Bernama, he said the rise in crude oil prices has affected the country’s inflation price, with the Consumer Price Index in March 2022 rising by 2.2 percentage points to 125.6% from the 122.9% in March 2021.
This surpassed the average inflation rate of 1.9% for the January 2011-March 2022 period.
Malaysia is spending billions of ringgit on all kinds of subsidies including rice, sugar, essential items and goods, including fertilisers which are petrochemical-based, and medicines.
Imagine, we have among the highest numbers of diabetic cases in Asia and we are still subsidising sugar.
Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz put it bluntly in a recent interview in The Edge: “We are one of the most heavily subsidised nations in the world. It is estimated that more than 80% of each household’s expenditure is subsidised, from electricity to water.”
Obviously, this subsidy mechanism is not viable in the long run, but any reduction has to be done in a targeted and gradual manner.
Singapore is already talking about raising its Goods and Services Tax (GST) to 9% from the current 7%.
We, on the other hand, allowed more withdrawals from the Employees Provident Fund.
With GST, the government would have earned an additional RM20bil a year and perhaps RM40bil in two years, but it was politically unpopular.
For sure, a starting GST rate of 6% then was unpalatable but, unfortunately, politics got in the way, like with everything else in Malaysia.
The greatest sin was in abolishing GST simply because the new Pakatan Harapan government in 2018 wanted to be popular but it came at a great cost to the country.
It could have just been reduced to 3% but a promise to kill the GST appealed to the electorate.
That is now history and individual taxpayers, who make up only about 16.5% of Malaysia’s 15-million strong workforce, according to 2020 figures, have to shoulder the burden for the country’s 32 million people.
With a weak government and a general election looming, no politician would dare to talk about resurrecting the GST, in whatever name, or to cut subsidies, even if our federal leaders know that the subsidy bill keeps getting extended to keep inflation down.
Even Singaporeans are reportedly enjoying subsidised petrol in Johor and there have been other leakages including allegations of Malaysians selling diesel in mid-sea to foreign fishermen.
Tycoons with their fleet of expensive cars are also enjoying subsidised fuel, just like those in the B40 group.
There has to be a better understanding among Malaysians of why the ringgit has weakened but the inflation rate is well-maintained.
They have to know how subsidised fuel has kept prices stable for us despite the ever-increasing oil prices.
Otherwise, Malaysians will simply believe everything they read on social media about the economy and the value of the ringgit.
