Thursday, June 12, 2008

People want answers on Government expenditure


EACH time the Government raises prices, there is bound to be public outcry. This time, it is part of the worldwide wave of anger and frustration at high prices compounded by greed and excessive speculation.

People are in no mood to listen to explanations and justifications because their pockets are hit. In the case of Malaysia, they are asking hard questions as to how an oil-producing country is unable to tide over the current crunch.

What they want is an independent audit of how the Government has spent its money, its plans to restructure its expenditure and further trim current excesses.
Better yet, they would like an overall package of benefits that addresses the far-reaching problem of inflation. The impression given now is that benefits are being rolled out on a piecemeal basis and, thus, the impact is lost.

With the hikes in petrol and diesel prices, the Government is targeting its incentives at vehicle owners. However, many other types of prices are rising in tandem.

Traders are partly to blame for this situation. When the Government raises prices, many businesses tend to raise theirs over and above some of these prices. They attribute the reason to rising fuel and other raw material costs for which they probably have raised prices earlier.
Still, it will be useful for the Government to look at overall price increases, especially this year, and draw up a master list of how it is helping people to mitigate the problem.
As far as the latest round of fuel price hike is concerned, people are still shocked at the suddenness and quantum. The decision to raise fuel price by 78 sen per litre was largely spurred by the need to plug leakages and smuggling activities.

Before the latest round of fuel and gas price increases, the Government’s subsidy payment would have been RM73bil, based on oil price of US$136 per barrel. (This includes RM33bil on fuel; RM7bil on tax foregone and RM33bil on gas.) Last year, it was only RM30.8bil and would have been RM65bil based on oil price of US$125 per barrel.

In this current round, it is not correct to think that the Government saves more as it is imposing a higher fuel hike. It saves less than RM3bil after taking into account the cash rebates given. In contrast, it saved more - RM3.3bil - the last time it raised petrol price by 30 sen per litre.
In the case of diesel price, the Government saved RM1bil when it last raised diesel price. In this current round, it is raising diesel price by RM1 per litre but maintaining prices for fleet card owners.

Under the fleet card system, the quota for diesel is four billion litres while the total consumption at petrol stations is five billion litres. Thus, about 20% of users are affected by the diesel price increase.

Overall, it is the Government’s intention to remain in a strong position to weather any upcoming global crisis. It also wants to cap the budget deficit so that it does not fall to worse levels than the 5.5% experienced in the 1997 Asian financial crisis. It has to make sure there is money left to spend even in troubled times.

There are also concerns that Malaysia may then be downgraded, leading to higher borrowing costs for its corporates. As a country, it does not aim to borrow; even at the height of the Asian financial crisis, it did not borrow from the central bank.
Petroliam Nasional Bhd, which contributed RM48bil to the Federal Government last year (RM4.15bil to the state governments in the form of royalty payments), is expected to bring in RM55.7bil this year (RM6.2bil in royalty payments). This represents 35% of Federal Government revenue.

Of the overall Federal Government revenue of RM147bil, about RM40bil is allocated for Ninth Malaysia Plan projects; RM33bil for subsidies; RM29bil for education; RM9bil for health, and the remaining RM36bil is for expenditure, for example, by the ministries.
A glance at these huge figures can be quite meaningless to the average Malaysian. It will be really useful for the Government to tear it apart and explain the details of its expenditure to the public.

People are demanding for answers and, the sooner these are given, the better it will be for the overall situation. But that must also come in hand-in-hand with solutions for a balance in people’s cost of living and personal income.

ckick: People want answers on Government expenditure