The Perception of Iium Community Towards Gradual Removal of Fuel Subsidies in Malaysia

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Perception of IIUM Community Towards Gradual Removal of Fuel Subsidy in Malaysia

Nur Nadhila Bt Mohd Robi
Bachelor of Accounting
Kulliyyah of Economics and Management Sciences
International Islamic University Malaysia, Gombak

English for Academic and Writing
LE 4000 Section 2
Lecturer: Madam Mona Mazlinda bt Mokhtar

5th December 2012

Abstract
Fuel subsidy is a portion of fuel price paid by the government to reduce the price burden on the consumers. Due to the rise in global market price and problems associated with the fuel subsidies, Malaysian government took an initiative to remove the fuel subsidy in a phased manner. However, its removal will adversely impact the society. This research paper is aimed to analyze the impacts of the gradual removal of the fuel subsidies and what the government can do to compensate for the loss of the fuel subsidy. Questionnaire was distributed to 30 respondents. Result show there seems to be an agreement that fuel subsidy should be gradually removed, but the removal must be accompanied by efficient policy implemented by the government. Public campaign to promote the understanding among the society could be the first step by the government to minimize the negative impacts on the society. KEYWORDS: fuel subsidy, subsidy removal, gradual removal, impacts, compensation

Perception of IIUM Community Towards Gradual Removal of Fuel Subsidy in Malaysia

For decades, Malaysian government has been subsidizing the fuel prices to lift the burden of having to pay the rising market price of fuel by the Malaysian consumers. According to Will Hickey (2012), “Subsidies are essentially the government buying energy at market prices and reselling it back to citizens at lower prices” (p.1). It means that the government covers a portion of the fuel price paid by the Malaysian consumers. This action is to protect the consumers from the price hikes due to the rise in global market price. However, as the global market price is uncontrollably accelerating from time to time, so does the subsidies borne by the government. There are many factors that lead to the increase in the global market price of fuel. From the economic point of view, the increase in price of the commodity is due to the fact that demand for the commodity exceeds its supply. The same theory applies to the increase in price of fuel. Norasibah, Gairuzazmi and Jarita (2009) claimed that the main reasons for the increase in the global market price are the decrease in oil supply, increase in oil consumption, especially from third world nation like China and India and political problem in the countries that produce oil. Therefore, when there is increase in demand, the price will goes up if the supply does not increase in proportion to the increase in demand. Despite the fact that subsidies are essential to cater to those in need, large amount of subsidies can be quite costly to the government. Studies have both found that subsidies lead to market distortion, overconsumption or wastage by the consumers, and represent a strain on annual budget as the subsidies could have been allocated for a better use (Ariff, 2008; Prime Minister Department, 2005). The last problem with subsidy is the most serious as in 2008 alone, approximately RM45 billion was allocated on fuel subsidy as compared to estimated RM40 billion amount allocated on the projected total development expenditure (Thillainathan, 2009). The cost of fuel subsidies even exceeds the development expenditure which is equally important for well-being of the economy and the people as a whole. Other studies also observed that the fuel subsidies mostly benefit the rich more than the poor as the rich consume more fuel for their luxury cars (Robert, Masami, 2006; Thillainathan, 2008). This means the main aim of giving out subsidies by the government is unmet as subsidies are mainly targeted to those who are poor and in need of financial assistance. Due to the rise in global market price...
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