Trapped in RM80 billion subsidy

- Advertisement - [resads_adspot id="2"]

A result of “ketuanan Melayu” policy, corruption and nepotism.

Finance Minister Tengku Zafrul Tengku Abdul Aziz said the subsidy bill for this year (2022) is expected to hit RM77.3 billion – the largest in the history of Malaysia. The subsidy included petrol, diesel, liquefied petroleum gas (RM37.3 billion), cooking oil (RM4 billion), flour and electricity (RM9.7 billion), Bantuan Keluarga Malaysia (BKM) (RM11.7 billion), and other subsidies (RM14.6 billion).

In actuality, only two-thirds of the subsidy amount (RM51 billion) is for essentials like petrol, diesel, gas, cooking oil, flour and electricity. The remaining one-third are cash handouts (RM11.7 billion) to fish for votes and other unknown subsidies (RM14.6 billion). The government can cancel the BKM cash aid, but then it will definitely lose power in the next national election.

The burning question is – what are the “other subsidies” amounting to RM14.6 billion, which is more than the cash handouts for the people? If the other subsidies included compensation to highway operators due to lopsided agreements in order to enrich elite politicians, then it’s unfair for the government to cry, whine, moan and bitch about the record-breaking subsidy for this year.

Senior Works Minister Fadillah Yusof revealed last year how the government must pay a whopping RM2.25 billion in compensation to several Klang Valley highways for freezing toll rates in 2021. PLUS Expressways’ compensation alone was more than RM1 billion. Obviously, these are corruptions or leakages – not subsidies – which do not benefit the people.

But even the subsidies for essentials are suspicious. For example, when the government tried to justify why subsidy for cooking oil needed to be scrapped, Finance Minister Tengku Zafrul said the government is currently subsidising about RM6 per kg for cooking oil. Current price is about RM8.50 per kg. Meaning the new price would be RM14.50 per kg.

Finance Twitter

However, cooking oil in Indonesia was selling for 17,300 rupiah per litre – about RM5.15 per litre (1 litre = 1 kilogram). Both Malaysia and Indonesia cooking oil is made of palm oil. Even if Indonesian palm oil mafia exploits the market by doubling the price, it’s still RM10.30 per litre. So, how did Zafrul calculate that the unsubsidised price is RM14.50 per kg, when Indonesia sells for only RM5.15 per kg?

Afif Abd Halim/TMI

Interestingly, after the clueless and incompetent Ismail Sabri government made a U-turn in floating the chicken price and raising electricity tariff, Tengku Zafrul took credit by claiming the government’s commitment to the huge amount of subsidies was to reduce the cost of living. Did he just admit that the government did not care about the people – till the public uproars?

The finance minister appears to be lost whether the government was complaining about the RM80 billion subsidies, or was actually proud of the massive subsidies. Either way, the government has no one to blame but itself. The subsidy did not start yesterday, but rather decades ago – before the Ukraine invasion by Russia – under the current UMNO-led Barisan Nasional government.

The root cause of Malaysia’s troubles – national debt, subsidies, quotas, favouritism, unemployable graduates, corruption, cronyism and whatnot – is traceable to “Ketuanan Melayu”, the ideology of Malay supremacy espoused by UMNO (United Malays National Organization), the party that has dominated the country’s politics for more than six decades till its stunning defeat in 2018 General Election.

In the aftermath of the 1969 general election, deadly racial riots broke out between Malays and Chinese in several cities when opposition parties made gains at the expense of the ruling coalition, the Alliance Party (which would become today’s Barisan Nasional). The riots itself was a plot to seize power by Deputy Prime Minister Abdul Razak from Prime Minister Tunku Abdul Rahman.

The bloody riots led to the formation of NEP (New Economic Policy), giving Malays (or bumiputera, equivalent to Sanskrit “prince of soil”) preferential treatment in all spheres of public life. From senior positions in the civil service to 30% stake in all corporations and from special quota in universities to a discount of 5% to 15% on new housing developments, the NEP was supposed to uplift Malays.

But the racist policy has instead given birth to not only corruption at industrial scale, but is also a drag on the country’s economic competitiveness. During Mahathir Mohamad era as the 4th Prime Minister of Malaysia from 1981 to 2003, major infrastructure projects – the North-South Expressway, the Petronas Towers, the Putrajaya – were awarded to Malay companies with ties to UMNO.

Privatization program saw many public utilities become so-called GLCs (government-linked companies), tasked with representing and promoting bumiputera interests. However, the owners or major shareholders of those Malay companies were either family members or cronies of UMNO politicians, including Mahathir and subsequent prime ministers – Abdullah Badawi, Najib Razak, and Muhyiddin Yassin.

From multi-millionaires in the 1980s and 1990s to multi-billionaires in the 2000s, the NEP has indeed produced many super wealthy UMNO-Malays. But only a very small minority of Malays have benefited greatly. While poverty and underemployment remain a stubborn problem in the Malay community, politically-connected Bumiputra entrepreneurs have prospered off state patronage.

UMNO elites have consistently refused reforms for fear of losing their own privileges. To hide or divert attention from their ill-gotten wealth, UMNO leaders would falsely and deliberately stir up racial and religious sentiments among the Malays that the Muslims and Malay Rulers have lost power to the “Chinese, Christians and Communists”.

To stay in power, all the government ministries, agencies and GLCs were headed by not only UMNO-Malays, but were ordered to hire only Malay staffs. Today, 90% of civil servants are Malays, systematically discriminating and forcing non-Malays to find jobs in the private sector. This has led to polarization based on race and religion, which has gotten worse with Islamic extremism and radicalization.

Now, here’s where the fun begins. After decades of hiring only Malays, the government has a 1.6-million-strong civil service workforce in the country – the largest civil service relative to population in the world. The bloated civil servants have become too big to be offended as they constitute a critical vote bank to the ruling government. The cost to feed them becomes out of control.

Finance Twitter

In the Budget 2022, out of RM332.1 billion allocated, a jaw-dropping RM233.5 billion is for operating expenditure, leaving only RM75.6 million for development. Civil service salaries and pensions account for about 45% of the operating budget. So, more than RM100 billion is being spent on civil servants’ salaries, money which otherwise can be used to develop economies.

Adding fuel to fire, the race and religion politics saw national schools becoming religious schools, producing increasingly low standard students, who, despite tertiary education in local universities, were unemployable as they can’t even communicate in simple English. Most would gain employment with the civil service, unable to compete in the highly competitive private sector.

Energy subsidies have existed in Malaysia since the 1980s, when Mahathir administration decided to keep the cost of living artificially low primarily because the government could only pay low salaries to Malay government servants who were unemployable. In 2020, the unemployed graduates shot to 202,400 – comprising mostly ethnic Malays.

Various subsidies were introduced to keep the country competitive in the 1980s and 1990s. Initially, Malaysia manufacturers focused on low value-added sector. With competencies in production and assembly and substantial talents in fabrication and product testing, the country had remained a relevant player in the global manufacturing industry, particularly the electrical and electronics sector.

However, with the emergence of countries like Vietnam and China who could offer cheaper workers, Malaysia suddenly found itself trapped in its own game – unable to move up the global value chain due to deteriorating education system as well as brain drain in the form of hundreds of thousands of technical skills gone through a large-scale migration to other countries.

Even though the world has changed rapidly, Malaysia remains stagnant, failing to shift from low-end manufacturing towards more high-value activities such as biotechnology, design and R&D, or AI (Artificial Intelligence). Local talents and companies are afraid to grow their products or business as they are spooked by the NEP policy which empowers parasite UMNO-Malays to grab 30% (or more) of their shares.

Promoting Malay supremacy not only undermines government accountability, but it makes for unsound economics. A classic example is Proton, Mahathir’s national car pet project that was started in 1983. Until it was acquired by Chinese Geely in 2017, Proton had been asking for subsidies to stay alive. Mahathir argued it must be continuously protected because it buys parts mostly from Malay vendors and employs almost only Malays.

Finally, Prime Minister Najib Razak took the first step to reform the country’s subsidy in 2014, slashing fuel subsidies and other types of subsidies that led to economic distortions. But Najib was a fake reformist. Despite scrapping subsidies, the saving was nowhere to be seen. Instead, under Najib administration, the country’s national debt ballooned to RM1 trillion.

Even though Najib introduced cash handouts in the form of BR1M (1Malaysia People’s Aid), the source of the aid did not come directly from the reduction of subsidies. It came from heavy borrowings as well as money stolen from 1MDB (1Malaysia Development Bhd). In addition, Goods and Services Tax (GST) was introduced effective April 1, 2015, collecting about RM44 billion annually.

In the end, the racist “Ketuanan Melayu” policy has not only failed to uplift the Malays, but makes them even more addicted to cash handouts and subsidies. The fact that the government said the latest RM100 cash aid will benefit an estimated 8.6 million people and four million households speaks volumes about the poor financial condition of Malaysians, especially the Malays.

There’s a reason why the value of local currency Ringgit has increasingly depreciated since the 1998 Asia Financial Crisis, and hasn’t been able to recover. Foreign investors are losing confidence, not only because of political instability, but because they have a better choice in other countries in the region like Indonesia, Vietnam, Thailand and the Philippines. The world does not revolve around Malay supremacy. – Finance Twitter