Remedies Needed To Help Low And Middle Income Groups After Subsidy Cuts

KUALA LUMPUR, July 16 (Bernama) -- The government needs to present some kind of remedies or action plan that can help the low and middle income groups to cushion the impact of subsidy cuts.

In stating this, MIMB Investment Bank Bhd's head of research Chan Ken Yew said the government's move was timely but there must be a win-win situation that could benefit the people while at the same time reduce government expenditure.

"I think the government has proposed some remedies but details have yet to be unveiled. We want to know more details, especially about tax relief," he told Bernama when contacted Friday.

Currently, the subsidy expenditure accounted for 11.7 per cent of total government revenue in 2009 compared to 1.5 per cent in 1988, which made the urgency to reduce subsidy expenses understandable, said Chan.However, the government needed to practise a more disciplined financial management apart from lowering subsidy expenditure as its operating expenditure had been on a rising trend, which accounted for 99 per cent of the total revenue last year from 79 per cent in 1998, he said.

"This is an unhealthy trend as it eroded the ability of the government to expand its development expenditure and weighed on the government fiscal's position," Chan said.

As such, if the saving of subsidy expenses was to channel to the poor or needy or to implement an expansionary fiscal policy, such as lower personal income tax or raising consumer's personal tax relief bracket, there would be no doubt that the government was heading the right path, Chan said.

"For example, the government can review the current tax relief and raise it according to the needs of low and middle income groups," he said. Chan said the current tax relief at RM8,000 a year, based on income average of less than RM1,000 per month, may not be sufficient for those in the urban areas. In this case, the government may consider raising it to RM12,000 a year that based on RM1,000 income average per month, he said.

The government could also look into scrapping road tax renewal as compensation for the fuel price hike, he suggested.For the poor, the government could introduce a coupon system to provide for the exchange of basic need products at local stores, said Chan."It will not only help the small local players but at the same time allow the poor to get their aid quickly and in rightful manner," he said."If you raise something, you need to reduce something else. I think that's a fair reason."

On inflation, Chan said the impact of this round of subsidies cut should be mild and manageable."We expect the inflation to gradually increase to about 2.3 per cent by end of this year," he said. According to him, inflation is not a major constraint but what's important is the move to benefit everybody in the longer term.-- BERNAMA