THERE never will be a right time to cut subsidies of any sort.

Those leaning towards left and state-sponsored welfare will forever argue against it.

The capitalists and economic optimists will forever extol its free market benefits.

The people will almost always prefer welfare and handouts however much state propaganda is used to strongly argue in its favour.

The economic reality speaks for itself, however little we want to hear it.

We cannot afford subsidies. Our country is growing larger, and the middle class is growing bigger.

The gaps between the rich and poor are becoming wider, and the positive indications of average statistics belie the fact that we are losing spending power, and effectively getting poorer in the middle and lower class.

A plenitude of factors is to blame, but it boils down to largely suppressed wages, inflation, devalued currency and a disconnect between notion-distributional numbers, which is quantitative in nature, to actual sentiment on the ground, which is largely qualitative.

Without accurate intervention, this creates two classes of poor – people who improve over time in tandem with economic growth, and people who do not benefit from it, who continue to remain at the bottom rung.

In his 2009 paper, International Monetary Fund’s Ravi Kanbur calls this “poor winners and poor losers”.

Correspondingly, there will be people who benefit and people who only suffer from a removal of fuel subsidies.

While it is technically accurate to argue that the subsidies are not reaching its targeted audience, to make the cost and inconvenience of implementing it and the subsequent domino economic impact worth the effort, it should also minimise the adverse impact on the poor, and the ensuing profiteering.

Otherwise, whatever benefits thought to be gained by reducing the benefits to the rich will only result in cost transference and pass through to the poor.

A crude example would be a tow truck operator who makes RM100 per shot – tow of under 50km, consumes about 10-15L of fuel for that distance – now has the choice to absorb RM1.20 per litre, or around RM12-16.

More than likely, however, they will pass this cost to the consumer via a RM30-50 price hike, as some viral circulars are already showing.

Not only do they not “feel” the price increase, but they would also actually make even more money, and burden consumers more than they are.

Similarly, a truck carrying 52,000 cans of drink from the Thai entry point of the North-South highway would incur an additional travel cost of RM 336 (at 35L/km consumption).

That works out to just RM0.006. If they increase the price of that soft drink by a single sen, that’s a 60% increase against a 42% increase in fuel cost, even assuming those are no longer subsidized (which they are).

The problem is, we are quick to blame and scold the government for the price hike avalanche, but not question those raising those prices to finance their next luxury car purchase. It is that transaction – the consumer subsidising their riches – that is more unconscionable.

We see this in everything, from drinks in mamak shops to hotel charges – when sugar rose by 11 sen in 2017, we saw a volley of price increases ranging from 10 to 50 sen per glass.

The sad reality is, subsidy removals, like almost everything – currency fluctuation, raw materials, minimum wage, market forces and Covid-19 – are used as excuses by greedy merchants to raise prices.

Subsidies in other countries are slowly being replaced with more sustainable mechanisms like infrastructure or direct aid, as populations age, get sick and take out from government coffers more than they contribute. – June 13, 2024.

* Emmanuel Joseph firmly believes that Klang is the best place on Earth, and that motivated people can do far more good than any leader with motive.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.