The government had announced recently that there will be a new ceiling price for chicken, though the price has yet to be set.
This is a U-turn to an earlier announcement that the government would remove the ceiling price for chicken, having being criticised as the public is faced by rising cost of living while income levels remain stagnant.
On the other hand, no new announcement has been made yet regarding the ceiling price of eggs and removal of subsidies for cooking oil.
Within days, in a turn of events, the Finance Ministry announced that the projected consumption subsidy expenditure of RM77.3 billion so far for 2022 is the highest subsidy in history ever borne by any government. A whopping RM37.3 billion would cover subsidies on petrol, diesel and liquefied petroleum gas.
This, and a series of recent announcements show government’s inconsistency in implementing policies – sending mixed signals to the public, businesses as well as investors.
Starting with the idea to reintroduce GST, followed by a decision to remove ceiling price for chicken, the government has made about-turns in both.
If government is just testing waters to gauge public sentiment, remember – general election is looming, it has successfully done so.
The government is facing a conundrum of removing fiscal burden of subsidies whilst at the same time maintaining a decent cost of living for the people.
Nonetheless, it would be useful to see the basis behind the earlier decision to remove ceiling price control and subsidies on food items vis-a-vis maintaining the colossal size of fuel subsidy.
Fuel subsidy is a blanket subsidy that benefit all users regardless of their income levels. Ceiling price control and subsidies on food items benefit all too.
However, removal of financial support on food items is expected to disproportionately affect the lower income groups more than their higher income peers.
In 2019, household earning less than RM2,000 per month spent 28.9% of their expenditure on food costs against 11.3% for the higher income group earning RM15,000 or more per month.
The same pattern is observed throughout the whole income range. Lower income groups spend higher share of expenditure on food, and vice versa.
Therefore, a strong justification is required to favour for continuation of blanket fuel subsidy in contrast to removal of financial support for food items.
In normal situation, subsidy rationalisation and removal of ceiling price would be steps in the right direction, as these measures are expected to minimise distortion in the market.
After all, these measures are only short term fixes, they are unsustainable for the economy in the long run.
It had been announced that targeted financial aid will be given out to the needy to cushion the impact of rising living cost. However, concerns remain as the public are still recovering from the aftermath of the Covid-19 pandemic.
It is not only the B40, but the M40 would be affected too. And this is the group that is often forgotten by politicians and policymakers in Putrajaya.
A more pressing need is for the government to improve income of the B40 and M40 groups and thus, reduce income inequalities in the country.
Job opportunities for medium-skilled and high-skilled workers should be created by promoting investment in the right value-add industries with correspondingly higher productivity and innovation levels.
To support this effort, upskilling and reskilling of workers should be a matter of priority. However, these efforts can only bear fruit when the government has the ability to promote a conducive ecosystem that promotes innovation.
Hence, going up the value chain of technology and promoting innovation as well as creativity should be one of the keystones of the nation’s economy moving forward.
Badlishah Sham Baharin, President, IKRAM
Mohammad Abdul Hamid, Central Executive Committee Member, IKRAM