Unity govt should focus on production subsidies to remedy country's debt - Economists

SHAH ALAM - Although consumption subsidies are beneficial to the people, especially those in lower income brackets, economists say focus should be given to production subsidies instead.

This was in response to former second finance minister Datuk Seri Johari Abdul Ghani's warning that the economy could collapse and cause immense suffering to Malaysians' future if the country's RM1.5 trillion debt and continuously widening budget deficit were not remedied.

When asked about the subsidies the Unity Government should retain and scrap following the country's debts, Senior Research Fellow at the Social Wellbeing Research Centre (SWRC) of Universiti Malaya, Dr Zulkiply Omar, explained that subsidies are typically seen as the second-best option when it comes to social welfare.

"There is always a hidden cost to society when any kind of subsidy is implemented.

"However, subsidies are also quite effective, especially to support production in selective industries," Zulkiply told Sinar Daily.

If subsidies are to be used, he further added that they should not be for consumption but rather for production.

Zulkiply further explained that there is no denying that the current consumption subsidies are advantageous to the people, especially for households in lower income brackets.

"For this targeted group of people, other forms of income transfer should be considered if consumption subsidies are removed.

"This is more effective in helping the target group without incurring too much cost to the government," he added.

Echoing Zulkiply’s views, Universiti Utara Malaysia economist Dr K. Kuperan Viswanathan urged the Unity government to take a comprehensive and in-depth review of all subsidies.

"Not all subsidies are bad, and of course there are good ones as well.

"Good subsidies help to increase productivity, enable a just society and equitable distribution of wealth in an economy, and also help to overcome market failures," Kuperan explained.

PKT Logistics Group Sdn. Bhd. Chairman Datuk Jalilah Baba also agreed that the Unity government must focus on helping the lower-income group.

"Those who have no income, such as farmers and single mothers, do not receive any contributions," she added.