Populists Economic Policies: Petrol Price

Sometime in the middle of last week, the govt decided to reduce petrol prices by 10 cents, stating that the world oil price has decreased. And since they are using a fixed 30sen subsidy system to detemine fuel prices, the amount the govt subsidises per litre is fixed. But what is not fixed is the total amount that the government must compensate to petrol producers. This is amount is decided by the number of litres of petrol that has been purchased by consumers like us.

Now here is where I'd like to give my 5 cents worth (used to be 2 cents, but due to rising inflation, it has now increased ;-p). And why do I think that my 5 cents is important? Because I majored in Economics, thats why!! Hehehe, well, actually this topic has been bugging me ever since I realised how much the govt spends on petrol susidies in our country.

Majority of the population in Malaysia finds that it is important that our govt not only continues, but to increase its subsisdies so we can enjoy lower prices at the pump.

My suggestion is definitely unpopular: Remove Subsidies totally and let us pay the world petrol price!!!!

Most of you would kill me if I was the Prime Minister but hear me out. Here is my reasoning:

First of all, before I totally reduce subsidies, I will lower import duty and excise duty for all vehicles. In 1 year, I will lower it to only a levy of RM5,000 per vehicle or 5% of the vehicle price (those under 2,000cc), whichever is higher. For cars that use alternative fuels or green vehicles, road tax will be waived for 5 years to encourage use of environmentally friendly vehicles.

And during that time i will slowly increase the price of petrol over 1 or 2 years, giving people time to adjust. The schedule as to how much per increase and when it will increase shall be released to the public to ensure there are no "midnight petrol kiosk madness" all over the country.

And what is my aim of doing that? Lets say the real world petrol price which we will pay in the future is RM 3.50 per litre (assuming it stays fixed for some time), we will pay RM1 per litlre more than we are currently doing. But if Taxes of cars were to be reduced, so for example, a fuel efficient Honda City will now cost RM60,000 to 65,000 including the new tax scale i mentioned. A Honda City now would cost at least RM 85,000.

With the new pricing structure, a person stands to save at least RM20,000 when he buys a new vehicle. That RM20,000 is enough to pay for another 20,000 litres of petrol (based on the extra amount that we will pay if subsidies were to be reduced). SO in this case, we will receive a "subsidy" on our petrol and still have lower car price. Lower car price means shorter car loan tenure or lower interests rates for us. Which will in turn, lead to greater savings.

And even better, lower prices will allow us to switch from gas guzzling cars to more fuel efficient ones, which in turn, will reduce pollution as these vehicles will emit less greenhouse gases.

Oh wait, I have not mentioned that all our tax money will not be spent on subsidising our own petrol. Also, if the subsidies were to increase, people will tend to waste the resource more than they will appreciate it. Ppl will overtravel unnecessarily, which will lead to higher petrol consumption, which will then lead to higher subsidies to be paid by the govt. Government savings from subsidies can then be used to develop and improve the country even further. The economy will defitely be boosted if money is spent on development, not on subsidies. Subsidies does not help the economy expand in anyway.

SO what i'm trying to say is that by making both petrol price and car prices reflect the world prices, the economy and the environment stands to gain. Of course the losers will be people who just bought vehicles or the poorer people. But the poorer people will stand to gain, once our local car manufacturers and low end vehicles are sold at sub-RM20,000 price tag, which I'm sure is possible. Plus a higher petrol price will then send a alarm to those people who cant afford to drive to wake up. Living beyond your means will only get them into trouble, but with a strong wake up call, they may still be able to salvage their finances.

Yes i know the increase in petrol price will lead to a general increase of price everywhere. But even without petrol price increase, the cost of goods will still increase anyway, so why let us live in a bubble-wrapped world. We have to start paying world prices for goods if we are to be globally competitive anyway.

And yes, the money can be used to help to poor Malaysians living below a monthly income of RM2,000 a month in cities and RM1,500 in smaller towns. Public transportation will definitely be improved.

In the end, what i have said is pretty much my opinion on how our economy should work, but then again, i'm entitled to say it and i dont think reducing petrol prices is the way to go. And for our govt and other Opposition memebers who play with the petrol price issue, i urge them to stop it as it is of no benefit to the citizens. Educate them, tell them why being at world price is important. It maybe painful at first, but this is only short term, in the long run, everything will normalize.

Well, anyway, i just want to reduce wastage and save the environment at the same time. And i dont like the way the politicians try to sway the people by playing with petrol price. Its very damaging to the economy...

I wonder if there are any of you that concurs with me?



Boodyboy, out!!!

Recent headlines in the newspaper

I'm sure by now most of you are beginning to suffer from the effect of the fuel price increase. yes, the moment we started our engines this morning, a whole new world of pain is inflicted on us. I dont know many of you spent a lot of time trying to fill up your tanks yesterday, but luckily for me, i already fuelled up in the morning. however, i was not spared from the the mad rush to the gas stations yesterday night.

i went home at about 7.30 last night and it took me more than 1.5 hours to reach home. the mad rush for petrol caused massive jams everywhere in KL. The federal highway was jammed. then the 50 cents toll before cheras was also jammed Then as far as my eyes could see, even the cars cant move out of the toll boths after paying because it was jammed after it as well. OK, so that sucked. Later when i was driving into my housing area, the only access road into Sg. Long, there was also a jam as the queues for the petrol station spilled onto the main road. So yes, it kinda sucked to be on the road yesterday.

OK. I'm now surfing on The Star's website looking at the news headlines. There are certain articles which caught my attention. The one which i will comment on is of course the article on the fuel price increase, which can be found here. below are excerpts from the article and my comments.

"Prime Minister Datuk Seri Abdullah Ahmad Badawi said the new prices were still at a 30-sen per litre discount from market prices.
In other words, if the market price is RM3 per litre, Malaysians will be charged RM2.70 at the pump. He said the price would be adjusted monthly based on the global oil price."

- This fixed subsidy system makes sense. Cant argue about it.

“Malaysians still pay lower than the market prices as far as petrol is concerned,” he told a packed press conference when announcing the restructuring of the subsidy package.
Abdullah said that although the restructuring would result in consumers having to pay more, prices were still lower compared with Singapore and Thailand."

- Yes but these countries that pay more are countries which dont produce oil. Look at this article in Malaysia Today, which shows us this graph: ... DOH!! I cant find the article anymore. oh well, what was mentioned that the price in petrol for oil producing countries were generally under RM1.00 per litre. Can you imagine that!?!
***EDIT**** Ok i found the article here. Enjoy!!!

“Our effort is certainly not an attempt to be popular but we try our best to help the people. We cannot satisfy everyone,” he said.
Abdullah said demand for public transport would go up with the rise in fuel prices and the Government was currently addressing the need to improve services.
He reiterated that the public should make changes to their lifestyle, saying they must ensure there was no wastage in resources such as water, energy and food.
He said if certain adjustments were made, the public would not be “too badly affected by price increases”.

- Congratulations, u certainly have become less popular. and not only can you NOT satisfy everyone, u cant hardly satisfy any1. Thanks for downgrading my lifestyle from economy rice to roti canai (even roti canai not cheap nowadays) Hmm... wat adjustments should i make to ensure i dont suffer so much? move to somewhere inside klang valley, where the property prices will kill me? downgrade my 1,300 cc car to kancil to save petrol (wont save by much, plus not as safe), or the worst option, take a motorcycle to work? (public transport not an option for those staying in Sg. long)

"He said the hike in fuel prices would cause a projected increase in inflation of around 4% to 5%. It would also have an impact on the country’s gross domestic product (GDP) growth but was confident that it could be maintained at 5% this year."

- hahaha!!! what a joke!!! petrol price goes up by 40%, thats already an inflation. and on average most food products (which we spend quite heavily on) will at minimum go up by 10%. But of course we know most hawkers and restaurants will jack up more than that. Do you think they will increase your wan tan mee by 35 sen if it used to be RM3.50? Maybe not. maybe they will increase it to Rm4.00. Heck, even my old car park management company has raised their season parking rates by about RM 15-20. Thats more than 10% increase for something that doesnt even have any of its cost directly related to the price of petrol.

OKOK... thats enuff on this piece of news.

On to other news today, guess what?

- Price of cooking gas delivery will increase (LPG did not increase though, thank god)
- Electricty rates will go up (for businesses and factories. Minister says it wont affect us, i say bullsh!t!!!)
- ceiling price of chicken lifted (meaning more expensive chickens)

So yes, we are all royally screwed. All these price increases on the same day of the fuel price hike. Who knows what will happen a week or a month from now? Maybe PM knows he's a goner, so he's taking revenge and punishing the rakyat for not giving BN the vote of confidence in March. All i can say is that i see very much bleaker days ahead for all malaysians. More kiasu ppl will appear (can't blame them). less yumcha sessions, if got it will be the case of who is going to pick who up? car pools, hehehe.

Even Yours Truly, who is no longer a miserly fellow (my nickname in primary school) will now behave a bit more scroogely than he used to. Sigh...


Boodyboy, out!!!