The government's recent announcement signals a significant policy shift: come mid-year, oil subsidies will cease to exist, ushering in a fully floated oil pricing regime dictated solely by market dynamics.
This strategic move is underpinned by a compelling rationale: to strengthen the government's fiscal stance. Oil subsidies constitute a substantial chunk of public expenditure, reaching approximately RM80 billion in 2022 and potentially surpassing RM100 billion. It nearly equals the total salary and emoluments of civil servants. This is why it's not impossible for subsidies to exceed RM100 billion.
Such a bold shift to float oil prices will undoubtedly unleash profound economic ramifications and deeply affect the livelihoods of citizens across the income strata.
It is imperative that these implications are meticulously examined and communicated comprehensively to everyone to enable early preparation. All stakeholders ought to undertake prudent preparatory measures.
The government has announced that assistance will be provided to households on a targeted basis, based on the PADU database. What criteria will be used for this targeted assistance? How will the framework and form of this assistance be determined, which are yet to be announced?
Simultaneously, concerns loom over the fate of various industries, particularly micro, small, and medium-sized enterprises (MSMEs). How will these entities weather the storm of heightened costs? What forms of action or assistance will enable them to absorb these increased costs?
Without mitigation measures devised to shield them, the burden inevitably cascades down to the populace at large. We don't want a situation where all cost increases will ultimately be borne by end consumers, the people, and the rakyat!
Do take note that, even the best-laid schemes can go astray. Even very careful designs or projects do not always succeed. In 1785, the Scottish poet, Robert Burns famously wrote this quotation, "The best laid plans of mice and men gang aft agley, and leave us naught but tears and pain from promised joy," in "To a Field Mouse." Or, in other words, "The best laid plans of mice and men often go awry," 229 years later, this still remains true.
Belling the Cat
I agree with the government's goal of bolstering fiscal resilience. Besides rationalizing subsidies, there are certainly other steps that the government can (and will) take to fortify its fiscal position.
A transparent and comprehensive roadmap must be laid out, articulating the overarching vision of fiscal fortification to the populace. In other words, it's advisable that comprehensive actions be announced to the people. So that everyone is clear about this significant agenda of strengthening fiscal position.
Clear delineations of priorities, meticulous scheduling, granular targets, and tangible indicators of success should be elucidated, ensuring both national prosperity and societal welfare are achieved. Everyone should be made to see the benefits to the nation and the people. A vigilant monitoring mechanism is imperative to track progress.
In navigating the transition to oil price floatation, eminent economist Professor Tan Sri Dr. Noor Azlan Ghazali raises pivotal questions that need to be clarified and
identified by the government. These inquiries are indispensable to ensuring the seamless execution of this subsidy policy overhaul.
1. Will the transition to oil price floatation unfold gradually or instantaneously, marking a singular, watershed moment?
2. What is the projected floating price vis-à-vis the prevailing controlled rate, contingent on contemporary global oil production, demand dynamics, and the
geopolitical milieu?
3. What is the government's role after subsidies are removed? Will the government still ensure that pump prices are "fair prices"? How will this role be carried out? Will announcements of "fair prices; be made periodically to keep people informed of the current market prices?
4. With governmental involvement in price determination waning, what mechanisms will dictate oil prices? Is Malaysia's price volatility genuinely tethered to global oil price fluctuations?
5. Are station owners and/or oil-producing companies free to determine their own prices, with no uniformity in prices among oil stations? Thus enjoying unfettered autonomy in price setting, heralding a divergence in pricing uniformity across stations?
6. Currently, the operation of oil stations is subject to contract terms with the parent company supplying the oil. Is it possible that we will see competition among oil stations and producers offering different prices?
7. Are station owners and/or oil-producing companies free to determine oil prices, subject to their own business strategies and competition? Or do they still need
approval from the government if they want to impose new prices?
8. Will oil prices in rural areas differ from those in urban areas based on different demand levels and competition between urban and rural areas? Essentially, divergent demand dynamics and competitive pressures result in oil price disparities between urban and rural locales.
9. How can we ensure that oil prices are "fair prices; based not only on market oil prices but also on the business model of stations and/or oil-producing companies?
10. Will there be limits on each price change? Who will determine this? Will these constraints be periodically revisited or exclusively contingent on market dynamics?
According to leading economist Professor Tan Sri Dr. Noor Azlan Ghazali, the success of rationalizing government subsidies is important to ensure fiscal sustainability. Government revenue needs to be spent efficiently to enable the country's economy to continue moving forward. Every facet of this transition warrants scrupulous examination and anticipatory measures. The government, industry, and the people must work together on this national agenda.
Comprehensive information should be provided and disseminated. A unified effort is indispensable to navigate this transformative juncture.
Understanding Public Policy
Public policy is a tool used to ensure that the nation's trajectory remains steadfast. We can try to understand public policy using the metaphor of a Formula 1 race and the British ocean liner, the Titanic.
In likening public policy to a Formula 1 race, the analogy suggests a rapid pace of decision-making and implementation, akin to quick maneuvers and high speeds. characteristic of Formula 1 racing. This implies that policy changes can be enacted swiftly, with adjustments made on the fly to respond to immediate challenges or opportunities.
On the other hand, comparing public policy to the Titanic invokes a contrasting image. The Titanic was a massive ship that required significant time and effort to alter its course due to its sheer size and inertia. Similarly, public policy decisions, particularly those with far-reaching implications, cannot be made hastily or without careful consideration. They require meticulous planning and deliberation, and often take time to be implemented effectively.
Furthermore, the Titanic analogy underscores the importance of coordination and collaboration across various sectors of society and industry. Just as steering the Titanic required the collective effort of its crew and passengers, shaping public policy demands cooperation and engagement from all stakeholders. This emphasizes the need for inclusive decision-making processes and consensus-building to navigate complex policy challenges successfully.
In essence, the comparison highlights the dual nature of public policy: while it may sometimes seem like a rapid sprint akin to a Formula 1 race, it more often resembles a slow and deliberate voyage akin to the Titanic, requiring patience, foresight, and collective action to chart a steady course forward.
Kancil Strategy & Diplomacy
In the final analysis, against the backdrop of an unfolding global landscape, change is inevitable, unrelenting, and overarching. Referring to the Malay metaphor of the smart mousedeer (Sang Kancil), the conduct of public policy ought to be a harmonious convergence point for ethics, economics, and politics. It requires a nuanced understanding of how these three dimensions interact and intersect.
Ethical principles provide a normative framework for evaluating policy options and guiding decision-making, ensuring that policies are morally justifiable and aligned with societal values. Economic analysis offers insights into the feasibility, efficiency, and distributional effects of policy interventions, helping policymakers design interventions that maximize societal welfare while minimizing unintended consequences. Politics, meanwhile, shapes the context in which policies are formulated and implemented, influencing the feasibility of various policy options and the likelihood of their success.
By embracing the interplay of ethics, economics, and politics, policymakers can develop policies that are not only technically sound and economically viable but also morally defensible and politically feasible, thereby advancing the collective well-being of society.
*The writer currently serves as a senior consultant at Global Asia Consulting (GAC) and has a background as a senior researcher at the Malaysian Institute of Economic Research. The viewpoints articulated are solely those of the author.