TARGETED subsidies, one of the proposed mechanisms Prime Minister Anwar Ibrahim is considering to tackle high cost of living, are difficult to implement and would tax the wisdom of those drafting the policy, economic experts said.

One thing the economists agreed on is that targeted subsidies are only good for the short term until problems contributing to the high cost of living are tackled and solved.

Financial expert Phua Lee Kerk told The Malaysian Insight that targeted subsidies will not work if the government only subsidises the hardest-hit group.

“For example, if businesses like, say the bakery, are not given any subsidy, then subsidising those in the low-income group will come to nothing as there is no guarantee the price of bread will remain unchanged,” he said.

Phua said since bakeries are also feeling the burden of costlier imported raw materials, the price of bread could go up, negating the subsidy given.

“It will be gone. It would not help those in the B40 group,” he said.

Phua is one of those who believes targeted subsidies are best as a short-term measure.

“Because the medium- to long-term approach to reduce the cost of living is still how to raise people’s incomes.

“Subsidies are an inherently discouraging measure. What is important is for the government to close the gap between the rich and the poor.

“In other words, Malaysia would be in good stead if 70% to 80% of its people are in the middle class.”

Phua said the high cost of living now is due to factors like the Covid-19 pandemic, which had adversely impacted the economy of every country in the world, as well as the Russian-Ukrainian war, which had disrupted the global supply chain.

South Johor SME consultant Teh Kee Sin said to bring down the cost of living, the government should set its priorities right.

He said Anwar should get political stability back, and with that card he will be able to entice more foreign investors to the country.

“The foreign investments would create more jobs for the people. When people have a well-paying, steady job, there is no necessity for subsidies,” he added.

Teh said overcoming labour shortage and making the ringgit stable should be Anwar’s priorities too.

“Tackling the labour shortage is a matter of urgency. No workers would deter foreign investors from coming in.

“It’s an issue the government needs to address.”

Teh said the labour problem could be tackled in three to six months, or within a year at the most.

He said when all the economic jigsaws are all in place, the government can then gradually remove the subsidies or replace them with other more acceptable mechanisms.

For SME Association of Malaysia president Ding Hong Sing, addressing the food supply chain to meet the demands is the key to solving the high cost of living.

“Why are our chickens expensive? They are fed imported corn. The weak ringgit has made imported corn feed expensive.”

He said since Malaysia has a lot of idle land, they could be used to grow corn to reduce our dependence on imported expensive feed.

On November 27, Anwar said the government is currently subsidising a whole range of goods and services, including electricity and fuel for all groups.

After chairing the 2022 National Action Council on Cost of Living Special Meeting, he said he has given the relevant government departments and agencies two weeks to come up with a proposal.

He said the targeted subsidies are meant to ease the burden of the have nots, adding that the haves and the business community should not be benefiting from it. – December 9, 2022.