Sugar, flour subsidies may be cut after Budget, says minister

OCTOBER 6, 2013

Customers leave with their groceries after shopping at a supermarket
in Kuala Lumpur August 28, 2013. — Reuters pic

KUALA LUMPUR, Oct 6 — Consumers still reeling from last month’s fuel price hike could be in for another hit after a minister hinted that Putrajaya may slash subsidies for flour and sugar in Budget 2014.

Domestic Trade and Consumer Affairs Datuk Hasan Malek said price support for the two items will be addressed when the Budget is tabled on October 25, according to the New Straits Times on its website today.

“The government’s intention is to strengthen the economy. We do not want to be like the United States, where its economy has been shut down,” he was quoted as saying by the newspaper.

“Sometimes certain actions need to be carried out. For me, the country’s interest is paramount.”

The US government is currently in a partial stasis after its political parties failed to agree on the federal budget and spending limits.

Speaking at a consumerism campaign in Ipoh, the minister repeated the government line that blanket subsidies were not effective as they did not discriminate between the rich and the poor.

“From a person who owns 10 houses or 10 cars to foreign workers, they are all enjoying our subsidy,” he was quoted further in the report.

Last month, Putrajaya moved to slash fuel subsidies for RON95 petrol and diesel by 20 sen per litre, raising their pump prices to RM2.10 and RM2.00 respectively.

The unpopular move is expected to save the government RM3.3 billion annually if oil prices remain stable.

Shortly after the fuel subsidy cut, Maybank Investment Bank Research predicted that gas and electricity prices would be the next to go up.

In a report on September 19, Maybank IB said it saw further subsidy rollbacks since the total savings from the Performance Management and Delivery Unit’s (PEMANDU) Subsidy Rationalisation Roadmap in 2010 has been lower than intended.

“Total savings since 2010, at RM9 billion into 2014, is a pale comparison to what was intended in the 2010 Roadmap.

“Considering its inflationary impact and the need to sustain domestic consumption, we take the view that upcoming subsidy rollbacks will remain gradual. We think gas and electricity prices will be next to be addressed,” said the report here.

Launched in May 2010, the roadmap detailed a five-year period of subsidy rationalisation to save RM103 billion by cutting subsidies mostly for fuel (petrol, diesel, and liquefied petroleum gas), gas, electricity, toll roads, and food (sugar, flour, cooking oil).

The fuel subsidy cut announced by Putrajaya last month was seen as a bid to appease global ratings firm Fitch, which cut its outlook on Malaysia’s sovereign debt from “Stable” to “Negative” in July.

But Fitch maintained that it will not alter its outlook unless more meaningful reforms such as the goods and services tax (GST) — also expected in the Budget — are introduced.

The subsidy cuts are, however, set to have a negative effect on Malaysia’s inflation rate.

The latest inflation rate for August 2013 was also recorded at 1.9 per cent. Bank Negara Malaysia previously announced that average inflation for 2013 has also increased to 1.8 per cent in the second quarter, up from 1.5 per cent in the previous quarter.

Minister in charge of financial affairs Datuk Seri Abdul Wahid Omar also predicted in September that average inflation rate may reach up to 2.3 per cent this year, resulting from the subsidy cut.

In a recent report, the Asian Development Bank warned that inflation would spike if Malaysia proceeds aggressively with its planned subsidy cuts

- See more at: http://www.themalaymailonline.com/malaysia/article/sugar-flour-subsidies-may-be-cut-after-budget-says-minister#sthash.NxOzNOpY.dpuf