KUALA LUMPUR, Friday 16 July 2010 (Bernama) -- The subsidy cuts by the government yesterday are mild and manageable on the pockets and more significantly, boosted confidence that the country is on the right track in undertaking reforms, said analysts.
Although the cuts were not unexpected, they said the Barisan Nasional government had surprised by displaying the will to push ahead to tackle the fiscal deficit.
"We were however taken by surprise by the speed with which the cuts were implemented, as we had felt that the government would resist making unpopular economic reforms for now," said Chris Eng, head of research at OSK Research.
Prime Minister Datuk Seri Najib Tun Razak on Thursday announced the subsidy reductions of five sen per litre each for RON 95 petrol and diesel, 10 sen per kilogramme of liquified petroleum gas and 25 sen per kg of sugar, while RON 97 petrol will no longer be subsidised.
The cuts will constitute savings of RM750 million for the government to better use resources for families, communities and business growth, Najib said.
Eng expected limited impact on the auto, toll road and retail sectors.
The cut on sugar subsidy could see some costs passed on to consumers but "the impact on disposable income should be mild", he said in a research note.
Malaysia Investors Association president Datuk Dr PHS Lim said although some quarters did not expect the government to cut subsidies before the next general election, he believed the government had moved to strengthen the financial side.
"This is not something that should be viewed from the point of a general election. The government is more concerned about the deficit and to strengthen the financial side and create confidence," he told Bernama.
"The government is doing the right thing. A country's financial rating is very sensitive, we have seen the talk of Greece and Spain going bankrupt, the whole world is conscious of deficits," he added.
Chan Ken Yew, head of research at MIMB Investment Bank Bhd, lauded the government's determinaton to reduce the country's subsidy expenses in line with plans to cut the budget deficit from seven per cent to 5.3%.
"We reckon that the impact of this round of subsidies cut should be mild and manageable," he said.
"Should the saving of subsidy expenses be channelled to the poor and needy or to implement an expansionary fiscal policy, such as lower personal income tax or raising consumer's personal tax relief bracket, we have no doubt that the government is heading the right path," he added.
Lim also said Malaysians must change their mentality and learn to pay for what they use instead of relying on subsidies.
"We must become a matured society in consumption, we have been spoiled all these time by government subsidies. We are an oil producing country but this does not mean we will be producing oil forever," he said.
"Like in the United States, they pay for what they use. In Taiwan, people use motorcycles to go to work and use their cars on weekends to go out with their families," he said.
He also said Malaysians were overcritical of public transport and must also change their perception that they would be looked down if they took a bus. (By THAM CHOY LIN/Bernama
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