Learning to live without subsidies

The price of oil is starting to behave like a curious boss in the office. Just as you thought that he is back in his chair, he is actually right behind you trying to see if you are actually doing work or talking to your friends on Facebook.

It was just a few months ago that the price of oil was US$40 a barrel. A few days ago, it hit US$80 a barrel, its highest in about a year. This is US$20 shy of the US$100 mark, a price many once thought the imagination could only belong to an analyst.

Well, that Goldman Sachs analyst, Arjun Murti, probably had a big bonus last year when oil hit a record US$147 in July. He made the US$100 a barrel prediction in 2005.

Last year, he made another forecast that oil could hit US$200 in two years or by the end of 2010.

The year 2008 was not a good one for Malaysian drivers because the price of petrol was allowed to spike as the government cut its subsidy. But the subsequent slump in oil prices meant that the government could afford to foot the subsidy bill.

Now that oil price has doubled in mere months, we really have to think about our long-term needs. Can we afford to continue fuel subsidies? Are we prepared for a future with expensive oil? Where do we stand in the so-called green revolution?

The short answer to question one is no, not at this level. Fuel subsidy is probably needed for public transport and for small-engine motorcycles but car owners will eventually have to live with more expensive petrol.

Clearly the government needs to spend more money to keep its people safe from crime, improve public transport and the education system to produce the much-needed workers for industries of the future.

The current global recession will not make it easier for the government to organise its finances. However, it does provide the government with a unique chance to lower its subsidies and give to those who really need them.

The answer for question two lies in Budget 2010, which will be presented today. The government needs to send a message that Malaysians must learn not to depend on subsidies and prepare for the transition to a high-income economy.

I believe Tan Sri Amirsham A. Aziz, chairman of the National Economic Action Council, was right when he said that measures under Budget 2010 will send signals to investors about Malaysia's long-term direction.

And what of question three? I think it is still too early to answer that question, but we need to carefully plan where we want to be in the overall scheme of the green industry.

So far we have successfully attracted a few major foreign investments in renewable energy like solar panel makers, but we are very far behind when it comes to our own targets for green energy.