2008 has been deemed by many to be a woeful year. Yet I see it differently. I see it as a year where excesses is finally curtailed; where the arrogant is humbled; and where great despair is slowly replaced by small glimmers of hope for better days ahead.
Global financial markets suffered huge volatility and trillions of market capitalisation were wiped out. Giant financial institutions once thought to be too big to fall, fell. We are all Keynesians now – as governments are now looked upon as the only saviours able to save their countries’ economies from further collapse. Massive government stimulus; re-regulation and ultra loose monetary policies are now the flavour of the day. The free market ideologies of the Chicago School are being quietly discarded as its disciples presided over the worst financial turmoil and scandals, brought about by their over-zealous beliefs that markets are self-regulating.
Politics-wise, well, some bad, some good. Zimbabwe is still ruled by a President who is perversely spending his energies in a desperate bid to cling to power, by instituting brutal oppression of any opposition. Meanwhile, epidemics, runaway inflation and hunger ravaged the country. The Middle East could not see a ceasefire last beyond 2008 between Israel and Hamas – and greeted the new year with hundreds dead and thousands injured in Gaza. On a brighter note, US saw the election of the first non-white President, which cast a warm glow of optimism around the world as many countries partake in the hope of a new era after the destructive foreign adventures of George Bush.
In Malaysia, we too had our ups and downs. BN losts its two-thirds majority. Five states, which together accounts for the major portion of the country’s GDP, fell to the Opposition. The destruction of BN saw the birth of a viable two-party system, and the emergence, hopefully, of a true democracy, where the people are the masters, not their political representatives. However, the BN seemed to have decided that its setback was only momentary, and that the people will come back to its senses in the next General Election. So out comes the usual “divide and conquer” politics – racially-charged statements; senseless use of ISA (for its detainee’s protection); and instructions to the media “to behave”.
President Ronald Reagan, in the 1992 GOP Convention, said, “Whatever else history may say about me when I am gone, I hope it will record that I appealed to your best hopes, not your worst fears, to your confidence rather than your doubts.” I certainly hope that for 2009, our new Prime Minister will echo the same thoughts – that in the face of immense challenges facing Malaysia, if the government insists on instilling fear by emphasizing what we can lose, instead of what we can gain, from meritocracy, transparency and the courage to reform our many failed institutions; then the seeds of opportunities brought about by the “creative destructive” forces of 2008 will be forever squandered. Malaysia will be further left behind, as governments around the world re-tool their economies and restructure their institutions in the face of a new global reality caused by the near collapse of the global financial system.
I prefer to remain optimistic that change is in the air for 2009. After all, we Malaysians are lucky in that there is still so much to hope for in this country of plenty.
Happy New Year to all you hopeful Malaysians out there.
Wednesday, December 31, 2008
Sunday, December 7, 2008
Petrol Tax at the Worst Possible Time
It is a fact that current pump prices are higher than what the market would dictate. This indicates that the government is effectively imposing a sales tax on petrol. The government has admitted to pocketing windfall revenue from the differential. The quantum of RM16m per day reported by the Star may be over-stated. But that is not important. The crucial issue here is that – is this the right time to collect petrol tax?
When the price of petrol was raised by a whopping 40% back in June, the government took a “shock therapy” approach – by announcing one huge price hike instead of a series of smaller increases, or the gradualist approach. Perhaps it was the spiralling costs of the subsidy that prompted the government to brave public backlash. Whatever the reasons, in one single day businesses saw their costs soaring as a result of higher energy costs while consumers have less money to spend after filling up their car. There was no adjustment period given.
In the 6 months since the 40% price hike was announced, crude oil prices has tumbled from above USD120 per barrel to about USD42 per barrel today. That is a fall of over 65%. In contrast to the manner in which petrol price was raised in one big swoop, the price reduction was announced in a series of small instalments. Traders were then taken to task for not reducing their prices quickly enough in tandem.
But can you really blame local businesses, whom the government hit with a double whammy – 1) unexpected huge increase in operating costs overnight; and 2) while reducing domestic spending power– for being cautious in re-adjusting their prices less crude oil prices reverse course and the government singularly increase price again? Without information on the government’s pricing mechanism, how does it expect businesses to plan their pricing strategies?
With the global economic crisis, the only silver lining for businesses and consumers is falling energy prices. Every penny counts for cash-strapped business owners and middle class Malaysians. Expectations of the future are bleak among most Malaysians. Under such dire circumstances, the responsible family head or company CEO will want to save more cash and spend less. Finance Minister Najib must find ways to put more money in these worried Malaysians’ pockets fast, as the only catalyst left for our economy’s growth is strong, sustained domestic consumption.
The government knows this – which is why they announced the 3% reduction in employees’ contributions to the EPF. But it is hypocritical to ask Malaysians to spend more now by dipping into their retirement savings fund, while the government sits on millions of windfall tax collected on a daily basis. We do not need more tax now. We need fewer taxes, and more government spending on those items which has high multiplier effect. If the government has no clue how to spend these windfall proceeds, let us have our money back by charging market prices for petrol in these difficult times. Responsible Malaysians are unlikely to be rushing out to drive more or switch en masse from public transportation to private ones as a result of substantially lower fuel prices. More likely, it will be a welcome relief for millions struggling to balance their stagnant real incomes against the significant increase in costs of living, caused by the fuel price jump in the first place.
Granted, petrol subsidy is not good for the economy – it distorts consumption choices and it is not particularly equitable. The billions should be spent on health care or education where everyone can benefit. But swinging from a petrol subsidy to a petrol tax just when every Malaysian is looking to tighten his or her belt is perverse, and does not make economic sense. With so many bad economic reports out there, give Malaysians a break – let us enjoy some savings, while the market still allows.
When the price of petrol was raised by a whopping 40% back in June, the government took a “shock therapy” approach – by announcing one huge price hike instead of a series of smaller increases, or the gradualist approach. Perhaps it was the spiralling costs of the subsidy that prompted the government to brave public backlash. Whatever the reasons, in one single day businesses saw their costs soaring as a result of higher energy costs while consumers have less money to spend after filling up their car. There was no adjustment period given.
In the 6 months since the 40% price hike was announced, crude oil prices has tumbled from above USD120 per barrel to about USD42 per barrel today. That is a fall of over 65%. In contrast to the manner in which petrol price was raised in one big swoop, the price reduction was announced in a series of small instalments. Traders were then taken to task for not reducing their prices quickly enough in tandem.
But can you really blame local businesses, whom the government hit with a double whammy – 1) unexpected huge increase in operating costs overnight; and 2) while reducing domestic spending power– for being cautious in re-adjusting their prices less crude oil prices reverse course and the government singularly increase price again? Without information on the government’s pricing mechanism, how does it expect businesses to plan their pricing strategies?
With the global economic crisis, the only silver lining for businesses and consumers is falling energy prices. Every penny counts for cash-strapped business owners and middle class Malaysians. Expectations of the future are bleak among most Malaysians. Under such dire circumstances, the responsible family head or company CEO will want to save more cash and spend less. Finance Minister Najib must find ways to put more money in these worried Malaysians’ pockets fast, as the only catalyst left for our economy’s growth is strong, sustained domestic consumption.
The government knows this – which is why they announced the 3% reduction in employees’ contributions to the EPF. But it is hypocritical to ask Malaysians to spend more now by dipping into their retirement savings fund, while the government sits on millions of windfall tax collected on a daily basis. We do not need more tax now. We need fewer taxes, and more government spending on those items which has high multiplier effect. If the government has no clue how to spend these windfall proceeds, let us have our money back by charging market prices for petrol in these difficult times. Responsible Malaysians are unlikely to be rushing out to drive more or switch en masse from public transportation to private ones as a result of substantially lower fuel prices. More likely, it will be a welcome relief for millions struggling to balance their stagnant real incomes against the significant increase in costs of living, caused by the fuel price jump in the first place.
Granted, petrol subsidy is not good for the economy – it distorts consumption choices and it is not particularly equitable. The billions should be spent on health care or education where everyone can benefit. But swinging from a petrol subsidy to a petrol tax just when every Malaysian is looking to tighten his or her belt is perverse, and does not make economic sense. With so many bad economic reports out there, give Malaysians a break – let us enjoy some savings, while the market still allows.
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