Food prices expected to rise next year

According to the 2015 Economic Census, Malaysian households consume more processed foods and beverages than primary agricultural products. – The Malaysian Insight file

MONOPOLY, a weak ringgit, and consumption tax will further push food prices above Malaysia's inflation rate in the coming years, a think tank said, despite better economic data. According to the Food Policy Institute (IDKM), the country’s high food prices were due to several factors, with the monopolies over food imports and supply of locally sourced fresh produce having the greatest impact.

IDKM laboratory chief Dr Yusof Saari, who has advised the government on food policy, said as the rise in prices did not match the slower rise in wages, consumers would continue to be burdened by higher living costs.

Yusof added that dearer food next year would most affect the the middle class, or the M40 income group, and the effects were already visible.

For instance, consumers were unable to buy in large quantities or they are skimping on quantity and quality to stretch their ringgit, said the Universiti Putra Malaysia lecturer.

“People can’t buy 10 or 15kg bags of rice anymore. So they are buying smaller bags of 1 or 2kg while waiting for the next salary," he told The Malaysian Insight.

Yusof said before the subsidy was abolished, there was high demand especially in urban areas for low-grade 15% broken rice known as “ST15” that was usually reserved for the poor.

The price of ST15 was subsidised at RM7.50 per kg but the programme was stopped in 2015 due to leakages.

Monopolies over food imports and supply of locally sourced fresh produce have the greatest impact on food prices. says an expert. – The Malaysian Insight file pic, November 17, 2017.

Data from the Statistics Department show that food and non-alcoholic beverages are the highest rising components in the Consumer Price Index – a measure of inflation.

In September, food and non-alcoholic beverages went up by 4.3% compared with the same period last year.

“Our problem is the monopoly of certain companies, which makes things worse when our ringgit weakens and petrol prices increase.

“It is also not because our farms don’t produce enough. Even if they do produce a lot it is pointless if consumers cannot afford it.”

Malaysia imported food because it made more economic sense given that the imports cost less than local produce, he said.

Diyana Ibrahim

Source: https://www.themalaysianinsight.com/s/23211/

Conclusion:

Monopolies in the supply chain were aggravating the price increases and in some cases, causing food costs to rise.
They also controlled the market and giving consumers fewer choices in price and quality.

There are also monopolies over local food production, such as of rice which is controlled by Bernas. There are other companies that sell rice but they source the rice from Bernas.

The result of all this is that consumers have fewer choices and food producers have little incentive to offer better quality and prices.

I think the better solution was to get rid of monopolies that were controlling market prices. We won’t stabilise food prices even if we increase wages. We have to change our food supply chain, so that our market can work the way it is supposed to.

With Geely, Proton can achieve economies of scale

KUALA LUMPUR: The economies of scale factor which has eluded national carmaker Proton Holdings Bhd for a long time, can be achieved via its newly-signed strategic partnership agreement with China's Geely, a research institute director said today.

Dr Irwan Shah Zainal Abidin, Director of the Asian Institute of Banking and Finance at Universiti Utara Malaysia, said with the deal, Malaysians can also expect a gradual reduction in car prices in the future, a key objective of the National Automotive Policy (NAP).

"I see the partnership as a huge opportunity for Geely through Proton to access the 600-million ASEAN market. For Proton, it is a chance to penetrate the vast China market," he told Bernama.

He said the transformation of Volvo in less than five years after being acquired by the Chinese carmaker would be replicated at Proton as well, because Geely is a highly market-driven entity.

The company's track record shows it has turned around several ailing car manufacturers.

In acquiring a 49.9 per cent stake in Proton, its founder, Li Shufu, must surely be confident of putting the ailing Malaysian company back on the right track.

"Li Shufu is an industrialist and entrepreneur who won't just buy something for the sake of acquisition. He must have studied the risks and viability, both over the short and long terms, and at Proton's production capacity of 400,000 cars that is currently under-utilised.

"Geely has just set up a plant at London Taxi, specifically to work on electric and hybrid car models, and this will have a positive impact on future production at Proton," Irwan Shah said.

DRB-Hicom Group Managing Director Datuk Seri Syed Faisal Albar said last week that as part of the agreement, Geely would inject a sports utility vehicle (SUV) platform into Proton and offer its best-selling SUV. This enables Proton to enter into a new segment that had grown tremendously over the past years.

Syed Faisal also said Geely made the best partner for Proton as the former had agreed to retain the carmaker's nameplate and aimed to reclaim the number one spot in the country.

Irwan Shah said some Malaysians, sceptical of the tie-up, were those who still believed in the old ways of the automotive industry and oblivious to changes in its business models and trends. This latest partnership is just one of many to have taken place worldwide as the industry’s bottom line is the production of quality cars that can compete in the global and open market. -- BERNAMA

SOURCES : https://www.nst.com.my/business/2017/06/245457/geely-proton-can-achieve-economies-scale

CONCLUSION :

Economic of scale means can produce more quantity with the minimum of cost.

In the article said, Geely,proton can achieve economic of scale because they can produce Geely at maximize quantity at a lower cost.Besides, Geely is the most bestseller in national because it was a transformation of volvo and also the price is affordable. Beside, in malaysia it was a proton's first SUV model.

                                       

THE SHORT RUN AGGREGATE SUPPLY CURVE (AS)

Short Run Aggregate Supply Curve

A change in the price level brought about by a shift in AD results in a movement along the short run AS curve. If AD rises, we see an expansion of SRAS; if AD falls we see a contraction of SRAS.

Short run aggregate supply curve

Shifts in Short Run Aggregate Supply (SRAS)

Shifts in the position of the short run aggregate supply curve in the price level / output space are caused by changes in the conditions of supply for different sectors of the economy:

• Employment costs e.g. wages, employment taxes. Unit labour costs are also affected by the level of labour productivity
• Costs of other inputs e.g. commodity prices, raw materials. The exchange rate can affect the prices of key imported products
• Impact of government e.g. environmental taxes such as carbon duties & business regulations which affect the costs of production

CONCLUSION

THE GRAFT SHOWN BETWEEN PRICE AND GDP( GROSS DOMESTIC PRODUCT) IN SHORT RUN CURVE.THERE ARE SHIFT OCCUR IN THAT CURVE WHICH IS JUST SHIFT THE POINT OF THAT PRICE AT THE SAME CURVE. THIS PHENOMENA HAPPEN WHEN THE COST OF PRODUCTIVITY IN ECONOMY CHANGE.IF THE COST OF INPUT INCREASE, SO, THE PRICE WILL SHIFT TO DECREASE POSITION AND THIS WILL AFFECTED THE OUTPUT TOO AS IT  WILL DECREASE AND VICE VERSA.

THE FACTOR THAT EFFECT THE COST ARE SUCH AS WAGES,COST OF RAW MATERIAL,TAXES AND OTHERS. THESE WILL AFFECTED TO THE COST PRODUCTIVITY. SO, ECONOMY IS DEPEND ON COST OF PRODUCTIVITY IN PRODUCE A COMMODITY.

SHELL PERTOL as Oligopoly market

 SHELL PETROL

Nowadays, no matter cars, buses, airplanes, they are all the vehicles that have been walked through our life and become a necessity to us. As a student, need to take a bus to school. A businessman needs a car to go to work, sometimes even has to take the aeroplane to other countries for a meeting. So that, vehicles are very important as they are helpful in our life.

            Shell, also called by Royal Dutch Shell, a petrol station which is founded by Marcus Samuel in 1897 and it first entered to Malaysia, Miri at 1910 while there was proceeding an oil well drilling project (Royal Dutch Shell, 2013). Until now, Shell becomes the largest natural gas producer and it is the one retailer out of few petrol stations in Malaysia, such as Caltex, Petronas, and Petron. (Shell, 2013). Shell is an oligopoly market structure which is described as only a few numbers of companies or firms control over the market, although each of them is the competitors to each other. Because of they are interdependent and only few petrol stations in this industry, each of them is holding a large market share which gives them the power to control and influence the prices of petrol (Your friendly tutor, 2007). However, they are prohibited to argue or control the prices of petrol in Malaysia because of petrol is an item which is controlled by the government. Thus, all petrol stations have to sell petrol at the same prices. In this situation, Shell and other petrol stations have to follow the instructions given by the government and accept the price ceiling or price floor that set by the government. Although it has a price ceiling of the petrol, it actually helps to loosen consumers’ burden and it will help the market by avoiding shortage through both the demand and supply are in equilibrium. Besides, The government will set a price floor in order to prohibit anyone influences the prices of petrol by making them lower.

In the diagram above, we can see that price floor it looked like the price which is set by the government. Why and what causes the government to set a price floor of the petrol price? It is because of prohibiting the petrol stations from changing the prices of the petrol as they like. If the prices of petrol arise as high as consumers cannot afford it, demand will go down, however, supply will be going up in term of the target or goal of a firm is to maximize their profit. According to the Law of Supply, when the price is higher and higher, The Supply curve will rise (The Economic Times, 2013). Therefore, The producer will definitely supply more in order to get more and more profit. To solve this problem, The government has to set a price floor to control the prices of petrol to make sure all the consumers can afford and use petrol when they need. 

QUESTION :

There is a new type of car comes out and it is running on a hybrid electric engine. It uses lesser petrol and gives more power to a car to speed up. Will this influences the price elasticity of demand for petrol becomes elastic?

ANSWER :

In my own words, the value of the hybrid electric vehicles might be costly and majority consumers who are belonging to lower income group cannot afford the price of it. They are willing to choose a normal car and continuously pay the high petrol fee. Moreover, limited resources in nowadays will also become an obstacle while producing the hybrid electric vehicle, at least most car factories are unable to do the mass production. Therefore, the demand of hybrid electric vehicle will not influence the elasticity of petrol. 

Malaysia trade exports and imports,

Southeast Asia, particularly Malaysia, has been a trade hub for centuries. Since the beginning of history, Malacca has served as a fundamental regional commercial center for Chinese, Indian, Arab and Malay merchants for trade of precious goods. Today, Malaysia shares healthy trade relations with a number of countries, specifically the US. The country is associated with trade organizations, such as APEC, ASEAN and WTO. The ASEAN Free Trade Area that was established for trade promotion among ASEAN members also has Malaysia as its founding member. Malaysia has also signed Free Trade Agreements with countries including Japan, Pakistan, China and New Zealand.
Malaysia was once the world’s largest producer of tin, rubber and palm oil. Its manufacturing sector has a crucial role in its economic growth. The export industry was hit hard during the late 2000 economic recession drastically dropping to 78% i.e. FDI to RM4.2 billion in the first two quarters of 2009. Total exports fell down to $156.4 billion in 2009 from $198.7 billion in 2008. The imports also reduced from 154.7 billion in 2008 to $119.5 billion 2009.

Malaysia Exports Commodities

Malaysia mainly exports the following commodities:

• Electronic equipment
  
• Petroleum and liquefied natural gas
  
• Wood and wood products
  
• Palm oil
  
• Rubber
  
• Textiles
  
• Chemicals
  

Malaysia Exports Partners

The following graph depicts the shares of various export partners of Malaysia:
 

Malaysia Imports Commodities

Malaysia mainly imports the following commodities:

• Electronics
  
• Machinery
  
• Petroleum products
  
• Plastics
  
• Vehicles
  
• Iron and steel products
  
• Chemicals
  

Malaysia Imports Partners

The following graph depicts the share of various import partners of Malaysia:
 





Importance of exports

• Employment. Growth in exports can create employment. 

• Economic growth. Exports are a component of aggregate demand (AD). Rising exports will help increase AD and cause higher economic growth. Growth in exports can also have a knock on effect to related ‘service industries.

Monopoly in Malaysia ; Tenaga Nasional Berhad (TNB)

          Tenaga Nasional Berhad (abbreviated as TNB or simply Tenaga Nasional is the only electric utility company in Peninsular Malaysia and also the largest publicly-listed power company in Southeast Asia with MYR 99.03 billion worth of assets. It serves over 8.4 million customers throughout Peninsular Malaysia and the eastern state of Sabah through Sabah Electricity Sdn Bhd. TNB's core activities are in the generation, transmission and distribution of electricity. Other activities include repairing, testing and maintaining power plants, providing engineering, procurement and construction services for power plants related products, assembling and manufacturing high voltage switch gears, coal mining and trading. Operations are carried out in Malaysia, Mauritius, Pakistan, India and Indonesia.

          

          Monopoly is a single firm producing a commodity that has no close substitutes. The firm is also considered as the industry. The essence of monopoly lies in the ability of the firm to control the price of its product or service, and Tenaga Nasional Berhad is able to make it.

          Tenaga Nasional Berhad is the only company in Malaysia which supplies electricity to households. The company remains as the only electricity supplier direct to the consumer because to start such a monopoly business as TNB will require a company to invest a huge amount of capital. A huge capital is needed mainly for the start-up of power plants with the high electric capacity of megawatts.

          We now assume there are two companies supplying electricity in Malaysia such as TNB and Malaya Electricity Berhad, having two companies to choose for consumers, it is definite that consumers will most likely make a decision based on which company can offer a cheaper price. Furthermore, not just price will be the issue but the number of power plants will also increase in the country, which will lead to the increase of transmission towers, what’s worse is how will they direct the cables to each household who chooses different suppliers. In order to resolve these issues, the government have given the license to only TNB to operate this business. This helps limit the entry into the industry by using license, and these are why monopoly industry has extreme barriers.

       TNB has ownership of the scarce raw materials and this plays a part in making an effective barrier to entry with no other firms having access to the scarce inputs to produce their output. So, if a certain production requires a particular input and the single firm which owns the entire supply of the input, the firm will have complete control in the industry. In this case, TNB has access to coal, which is the cheapest raw material used to generate electricity here in Malaysia. 

   

          Moreover, a single firm should be in this industry to keep the production cost from increasing, if there were more than one firm in this industry it will contribute to a higher price in coal. Then the coal supplier will sell the coal at a higher price because coal is a scarce resource by selling it at a higher price will contribute to the increase in production cost.

Based on the graph where production at the Marginal Revenue (MR) = Marginal Cost (MC) output. In order for the company to obtain maximum profit, the price must be set at the point, where it touches the demand curve and must be above the Average Total Cost (ATC). If TNB remains a monopoly in this industry it will be able to make supernormal profits indefinitely.

     

          Monopoly usually gets supernormal profit as their type of profit. Supernormal profit is the total revenue exceeding total costs for a company that holds a monopoly in a market.

          

            As a conclusion, TNB is a pure monopoly and this makes the TNB a price maker, so if prices were to be maintained or increase in the future, TNB will still be making a higher supernormal profit during that period, which will boost the company’s income. In the Islamic view, monopoly emerged on the economic scene after the industrial revolution. There is nothing in Islamic jurisprudence to justify an indiscreet condemnation of modern monopoly structures. Sometimes we need them in social interest. Also, we can take action if monopolies misuse their powers against social interest.

THAT'S ALL, THANK YOU.

Reference :

1) Economic with Islamic Orientation Oxford Fajar Sdn Bhd

2) http://www.preservearticles.com/201106178114/what-is-the-difference-between-normal-profit-and-super-normal-profit.html

3) Google image

4) Wikipedia

5)https://jonathan0311542.wordpress.com/tenaga-nasional-berhad-is-a-monopoly-company/

Malaysia’s June exports up 10% to RM73.1 bil from year ago

KUALA LUMPUR: Malaysia’s exports rose 10%, or RM6.6bil to RM73.1bil in June 2017 from a year ago, boosted by electrical and electronic (E&E) products, but the increase was below economists’ expectations of a growth of 18.3%.

The Statistics Department in a statement on Friday said re-exports in June 2017 was valued at RM9.7bil and accounted for 13.2% of total exports. Domestic exports was higher by RM7.6bil to register at RM63.4bil.

It said on a year-on-year basis, imports also increased, rising RM2.3bil to RM63.2bil. However, the growth was below the 19.8% rise by economists’ forecast.

Total trade in June 2017 which was valued at RM136.3bil grew RM8.9bil or 7.0% from a year ago. However, it fell RM17.1bil or 11.1% when compared to May.

In June 2017, a trade surplus of RM9.9bil was recorded, where a similar increase of RM4.4bil or 79.0% for both year-on-year and month-on-month was registered.

Compared to May 2017, total trade, exports and imports fell 11.1%, 8% and 14.5%, respectively.

The Statistics Department said June 2017’s exports were mainly driven by an increase in E&E products, which rose RM3.7bil to RM28bil.

Liquefied natural gas (LNG), which contributed 5.4% to total exports, grew RM2bil or 97.3% to RM4bil due to the increase in both average unit value and export volume.

Palm oil and palm oil-based products, rose RM845.7mil to RM6.2bil. Exports of palm oil, the major commodity in this group of products, rose RM524.1mil or 16.5% due to the increase in both export volume and average unit value.

However, refined petroleum products, which accounted for 5% of total exports, shrank RM679.4mil or 15.7% to RM3.7bil due to the decrease in export volume (-31%) as average unit value increased 22.2%.

Timber and timber-based products fell RM67.1mil to RM1.7bil while crude petroleum decreased RM19.9mil to RM1.9bil due to the decline in export volume (-9.2%) as average unit value increased 9%.

The Statistic Department said on a year-on-year basis, imports increased 3.7% from RM60.9bil contributed by intermediate goods and capital goods.

It said intermediate goods which constituted 60.5% of total imports increased RM3.6bil to RM38.2bil. The growth was mainly attributed to parts and accessories of capital goods (except transport equipment), industrial supplies, processed, industrial supplies, primary and food and beverages, processed, mainly for industries.

In the first half of 2017, Malaysia’s total trade rose by 22% to RM859.17bil from RM704bil recorded in the first half of 2016.

TAGS / KEYWORDS:Economy , Trade Surplus , Exports

sources: https://www.thestar.com.my/business/business-news/2017/08/04/malaysia-june-exports-rose-10pc-to-rm73-1bil/

conclusion : Increasing exports is generally considered to be beneficial to the economy. It increases production and GDP, and (all else remaining the same) improves the balance of trade. However, the increase in production will increase demand for inputs which may have negative effects on other sectors; and the increase in exports could cause the exchange rate to appreciate. These economy-wide effects may partially (or even completely) cancel out the beneficial effects of the increase in exports. This scenario looks at the aggregate impact of these various different effects.

Importance of exports

• Employment. Growth in exports can create employment. 

• Economic growth. Exports are a component of aggregate demand (AD). Rising exports will help increase AD and cause higher economic growth. Growth in exports can also have a knock on effect to related ‘service industries.

• Current account deficit. The strength of exports has a large role in determining the current account deficit. 

Malaysia factory output up 6.1% in July, beating forecasts

KUALA LUMPUR (REUTERS) - Malaysia's industrial production in July expanded at its fastest pace in eight months, government data showed on Monday (Sept 11), boosted by gains in all three major sectors.

Factory output grew 6.1 per cent from a year earlier in July, the fastest since November 2016 and beating the 5.3 percent annual rise forecast in a Reuters poll.

Industrial output was up 4 per cent in June.

July's factory output was due to strength in the manufacturing, electricity and mining sectors, according to data from the Statistics Department.

Manufacturing output grew 8 per cent from a year earlier in July, boosted by growth in the food, tobacco, and electrical and electronic products subsectors, the data showed.

The electricity generation sector rose 7.9 per cent year-on-year, while mining output grew 0.2 per cent.

Malaysia's exports in July beat economists' estimates, rising 30.9 per cent from a year earlier, on higher shipments of manufactured products and mining goods.

source : http://www.straitstimes.com/business/economy/malaysia-factory-output-up-61-in-july-beating-forecasts

conclusion ;

In the article said that, factory output increase in 6.1% in July due to the strength in the manufacturing, electricity and mining sectors, according to data from the Statistics Department.  This cause of rising in Malaysia's export in July.

The effect:
when output increases, supply also increases,then the price of output will increases too.
The more production, the more cost will occur.

In the short-run, increases (decreases) in demand in a competitive market will cause prices and output to increase (decrease). 

In the long-run, increases (decreases) in demand in a competitive market will cause increases (decreases) in output. Initially, markets with an increase (decrease) in demand will have firms experiencing economic profits (losses). Over time, markets with firms experiencing economic profits (losses) will have additional firms enter (existing firms will exit) the market, and prices will decrease (increase) towards previous levels. If cost conditions remain the same, then prices will revert to what they were before the increase (decrease) in demand.

Figure 3.10: Long Run Supply: Increasing Cost Industry

For a decreasing cost industry, if demand increases, in the long run firms can provide more output at lower prices. The need to produce larger quantities of goods and services in response to increased demand induces technological change, which lowers costs for the producer and these savings are passed on to consumers in the long run.

Malaysia GST – Types of Supply

Under the scope of Goods and Services Tax (GST) in Malaysia, supplies fall into 4 categories. They are, standard rated supplies, zero rated supplies, exempt supplies and supplies not within the scope of GST. Goods and Services that fall under each category predetermined by the Royal Custom Department of Malaysia.

Below is the explanation of each category.

1. Standard Rated Supplies

Standard rated supplies are referring to taxable goods and services, which are subject to a standard rate of 6%.

Any taxable person or company who is registered under GST requires to collect GST on behalf of the government on their sales of the supplies.  The person or company is eligible to claim input GST credit on the business inputs in making the said supplies.

For the consumers, they can identify the standard rated supplies by looking at the receipt when making the purchase. Normally, standard rated supplies GST labelled with an “S”.

The examples of standard rated supplies are local supply of goods or services, supply of land and building for commercial and construction of all types of building.

2. Zero Rated Supplies

Zero rated supplies are referring to taxable goods and services, which are subject to a tax rate of 0%.

Within this category, taxable person or company who is registered under GST does not require to collect any GST on their sales.  However, the said person or company is eligible to claim input GST credit on the business inputs in making the said supplies.

For the consumers, they can identify the zero rated supplies by looking at the receipt when making the purchase. Normally, zero rated supplies GST labelled with a “Z”.

The examples of zero rated supplies are goods such as basic food and utilities such as beef, rice, sugar, water for domestic use and first 200 units of electricity per months for domestic use.

3. Exempt Supplies

Exempt supplies are referring to goods and services, which are not subject to GST.

Within this category, taxable person or company who is registered under GST does not required to collect any GST on their sales nor eligible to claim input GST credit on the business inputs in making the said supplies.

For the consumers, they can identify the zero rated supplies by looking at the receipt when making the purchase. Normally, exempt rated supplies GST labelled with a “Z”.

The examples of exempt supplies are transport services, toll or highway and certain financial services.

4. Supplies not within the scope of GST

This category refers to supplies, which do not fall within the charging provision of the GST Act.

The example include non-business transactions, sale of goods from a place outside Malaysia to another place outside Malaysia as well as services provided by the Government sector.

Summary

Type of Supplies	GST Rate	Input GST
Standard Rated	6%	Claimable
Zero Rated	0%	Claimable
Exempt	Not Charged	Not Claimable

sources : https://www.hasilnet.org.my/gst-types-of-supply/

Conclusion

The Goods and Services Tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. 

• GST is progressive tax mean a tax that take a large percentage from high-income earners than it does from lower income individual.
• GST provides revenue for the government.
• GST is indirect tax.

GRAPH INCIDENT OF TAX:

MALAYSIAN SUBSIDIES

MALAYSIAN SUBSIDIES AND IMPACT TO THE COUNTRY

Who benefits most from subsidies? — Lim Sue Goan

OCT 3 — The huge amount of subsidies in the Budget 2013 has triggered a question over the effectiveness of the existing subsidy system. The rich and corporations have benefited the most from it, rather than the poor.

The day after the Budget was tabled, sugar refineries have notified retailers to raise sugar prices by 20 sen. The move to slash prices is always slow but when it comes to raising prices, it is lighting fast.

Would subsidising necessities benefit the people, or business operators? It was rumoured that some industrial operators have taken advantage of legal loopholes to buy large quantities of diesel from petrol stations, causing shortages in Johor, Malacca and Perak. Subsidised diesel and petrol have been smuggled and abused. Rich people with big cars can enjoy more subsidised fuel compared to the poor with small cars. Many sport utility vehicle and four-wheel-drive cars are also consuming diesel.

The government will allocate RM386 million to introduce the price uniformity programme and ensure the prices of essential goods in Sabah, Sarawak and Labuan are sold at lower prices through the opening of 57 Kedai Rakyat 1Malaysia (KR1M). Domestic Trade, Co-operatives and Consumerism Deputy Ministry Datuk Tan Lian Hoe pointed out that the government might provide subsidies to shipping companies. Why don’t they just repeal the cabotage shipping policy to directly ship goods to Sabah, Sarawak and Labuan without going through Port Klang?

In addition, Energy, Green Technology and Water Minister Datuk Seri Peter Chin Fah Kui said that with the rising international fuel prices, including coal and natural gas prices, tariff adjustments will be an inevitable trend in the future. The government gives many subsidies to independent power plant operators to maintain “cheap electricity tariffs”. However, the tariffs will still have to be adjusted eventually.

The rich and the poor have to pay the same tariff rates. The poor might not afford even an air conditioner but the rich might have installed a dozen of air conditioners. The subsidies have eventually given to the rich. From 2010 to July 2011, the government had allocated RM36.7 billion under the National Key Results Areas (NKRAs) for various subsidies and assistance, including the establishment of the KRIM, the Menu Rakyat 1 Malaysia and the 1 Malaysia klinik. However, these benefits can also be enjoyed by the rich.

The government also provides subsidies to other companies. According to Proton’s financial report as of March 31, 2011, it had received RM175 million of R&D incentives. The government has not studied whether these kinds of subsidies are effective or not, as well as to what degree the people can enjoy the benefits. Since there are many loopholes in the existing subsidy system, the prime minister said when delivering his Budget speech that the government will change the bulk subsidies into targeted subsidies.

I believe that the government will implement the subsidy rationalisation programme and goods and services tax (GST) after the general election to cut subsidies and increase tax revenues, and use the money to assist the poor and disabilities. The assistance for these targeted groups will be increased to help them cope with the increasing cost of living.

The minimum wage policy is meant for the same target. However, raising salaries while prices are rising will eventually raise commercial and industrial costs, causing the final products to lose their competitiveness in the international market.

Moreover, strengthening the people’s assistance scheme might lead the country towards the European welfare state system, which could turn the country into a lazy state. Malaysia should learn from Hong Kong and Singapore to first manage well the national finance and return the fiscal surplus to the people. A set of fair social policies is also essential to help the poor buy a house and solve education problems. The existing subsidy system has failed to lead the poor out of poverty while the resources have flown into the pockets of the rich. Subsidies are easily misused or abused and it is now the time to change the course. — mysinchew.com * This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.

CONCLUSION :

• Government subsidies help an industry by paying for part of the cost of the production of a good or service 

• Governments seek to implement subsidies to encourage production and consumption in specific industries. On the supply side, government subsidies help an industry by allowing the producers to produce more goods and services. This increases the overall supply of that good or service, increases the quantity demanded for that good or service, and lowers the overall price of the good or service.

• On the consumer side, government subsidies can help potential consumers with the cost to of a good or service, usually through tax credits. 

• Government subsidies can help an industry on both supplier side and the consumer side. To implement subsidies, governments need to raise taxes or reallocate taxes from existing budgets such as Goods and Services Taxes (GST)

SUBSIDY VISUALIZATION