FLOATING PRICES: ISSUES TO CONSIDER
THE government’s recent announcement signals a significant policy shift: come mid-year, fuel subsidies will stop, ushering in a fully floated fuel pricing regime dictated solely by market dynamics.
This move is underpinned by a compelling rationale: to strengthen the government’s fiscal stance.
Fuel subsidies constitute a large chunk of public expenditure, reaching RM80 billion in 2022 and potentially surpassing RM100 billion.
The move to float fuel prices will have profound economic ramifications and deeply affect the livelihoods of citizens.
Thus, it is imperative that these implications are meticulously examined and communicated to everyone to enable early preparation.
The government has announced that assistance will be provided to households based on the Central Database Hub (PADU). What criteria will be used for this targeted assistance? How will the framework and form of this assistance be determined?
Simultaneously, concerns loom over the fate of various industries, particularly micro, small and medium enterprises (MSMEs). How will these entities weather the storm of heightened costs? What forms of assistance will enable them to absorb these increased costs?
Without mitigation measures, the burden falls on the populace. We don’t want a situation where all cost increases will be borne by the rakyat.
However, even the best-laid schemes can go astray. In 1785, Scottish poet Robert Burns famously wrote “The best laid plans of mice and men gang aft agley, and leave us naught but tears and pain from promised joy,” in Toa Field Mouse. In other words, “The best laid plans of mice and men often go awry”.
Two hundred and twenty-nine years later, this still remains true.
Belling the Cat
I agree with the government’s goal of bolstering fiscal resilience.
Besides rationalising subsidies, there are other steps that the government can (and will) take to fortify its fiscal position.
A transparent and comprehensive roadmap must be laid out, articulating the overarching vision of fiscal fortification to the populace.
In other words, it’s advisable that comprehensive actions be announced to the people.
Clear delineations of priorities, meticulous scheduling, granular targets, and tangible indicators of success should be elucidated, ensuring both national prosperity and societal welfare are achieved. A vigilant monitoring mechanism is imperative to track progress.
In navigating the transition to fuel price floating mechanism, eminent economist Professor Tan Sri Dr Noor Azlan Ghazali raises pivotal questions that need to be clarified and identified by the government. These inquiries are indispensable to ensuring the seamless execution of this subsidy policy overhaul.
Will the transition to a fuel price flotation unfold gradually or instantaneously?
What is the projected floating price vis-à-vis the prevailing controlled rate, contingent on contemporary global oil production, demand dynamics and the geopolitical milieu?
What is the government’s role after subsidies are removed? Will the government still ensure that pump prices are “fair prices”? Will this role be carried out?
Will announcements of “fair prices” be made periodically to keep people informed of current market prices?
With governmental involvement in price determination waning, what mechanisms will dictate oil prices? Is Malaysia’s price volatility tethered to global oil price fluctuations?
Are station owners and/or oilproducing companies free to determine their own prices, with no uniformity in prices among oil stations? Thus heralding a divergence in pricing uniformity across stations?
Currently, the operation of petrol stations is subject to contract terms with the parent company supplying the oil. Will we see competition among petrol stations and producers offering different prices?
Are station owners and/or oilproducing companies free to determine
fuel prices? Or do they still need approval from the government if they want to impose new prices?
Will fuel prices in rural areas differ from those in urban areas based on different demand levels and competition? Essentially, divergent demand dynamics and competitive pressures result in oil price disparities between urban and rural locales.
How can we ensure that oil prices are "fair prices” based not only on market oil prices but also on the business model of stations and/or oil-producing companies?
Will there be limits on each price change? Who will determine this? Will these constraints be periodically revisited or exclusively contingent on market dynamics?
According to Noor Azlan, the success of rationalising government subsidies is important to ensure fiscal sustainability.
Government revenue needs to be spent efficiently to enable the country’s economy to continue moving forward. Every facet of this transition warrants scrupulous examination and anticipatory measures.
Comprehensive information should be provided and disseminated. A unified effort is indispensable to navigate this transformative juncture.
Understanding Public Policy
Public policy is a tool used to ensure that the nation’s trajectory remains steadfast. We can try to understand public policy using the metaphor of a Formula 1 race and the British ocean liner, the Titanic.
In likening public policy to a Formula 1 race, the analogy suggests
a rapid pace of decisionmaking and implementation, akin to quick maneuvers and high speeds. characteristic of Formula 1 racing. This implies that policy changes can be enacted swiftly, with adjustments made on the fly to respond to immediate challenges or opportunities.
On the other hand, comparing public policy to the Titanic invokes a contrasting image.
The Titanic was a massive ship that required significant time and effort to alter its course due to its sheer size and inertia. Similarly, public policy decisions, particularly those with far-reaching implications, cannot be made hastily or without careful consideration.
They require meticulous planning and deliberation, and often take time to be implemented effectively.
Furthermore, the Titanic analogy underscores the importance of coordination and collaboration across various sectors.
Just as steering the Titanic required the collective effort of its crew and passengers, shaping public policy demands cooperation and engagement from all stakeholders. This emphasises the need for inclusive decisionmaking processes and consensus-building to navigate complex policy challenges successfully.
In essence, the comparison highlights the dual nature of public policy: while it may sometimes seem like a rapid sprint akin to a Formula 1 race, it more often resembles a slow and deliberate voyage akin to the Titanic, requiring patience, foresight, and collective action to chart a steady course forward.
Kancil Strategy and Diplomacy
In the final analysis, against the backdrop of an unfolding global landscape, change is inevitable, unrelenting, and overarching.
Referring to the Malay metaphor of the smart mousedeer (Sang Kancil), the conduct of public policy ought to be a harmonious convergence point for ethics, economics, and politics. It requires a nuanced understanding of how these three dimensions interact and intersect. Ethical principles provide a normative framework for evaluating policy options and guiding decision-making, ensuring that policies are morally justifiable and aligned with societal values.
Economic analysis offers insights into the feasibility, efficiency, and distributional effects of policy interventions, helping policymakers design interventions that maximise societal welfare while minimising unintended consequences.
Politics, meanwhile, shape the context in which policies are formulated and implemented, influencing the feasibility of various policy options and the likelihood of their success.
By embracing the interplay of ethics, economics, and politics, policymakers can develop policies that are not only technically sound and economically viable, but also morally defensible and politically feasible.