Malaysians awake this morning to fearful days ahead. The government has announced a progressive hike in prices of fuel, essential food items, gas, toll rates, healthcare and education. Read more details HERE and HERE.
Yesterday the minister in the PM department, Idris Jala, has warned that if the government do nothing the nation will become bankrupt in 9 years. We also read HERE that next year we will become a net oil importer. Last year at the 2010 budget presentation, PM Najib declared he wants Malaysia to become a high income society. How he will do that is unclear but surely making it a high expenditure society has started. Strategically we should have become a progressively high income nation over the years through higher productivity and greater knowledge and skill enhanced society but we were stuck in the rut. Whatever greater knowledge and skills enhanced community we developed had been lost via brain drain so that we have become a net loser of our better human capital, attracting only unskilled foreign labour while losing our best to other nations.
Were we all living in denial and in isolation from the real cost environment all these years under the government’s subsidized policies? Were these subsidies part of the larger NEP that was meant to keep them in power? No doubt every citizen wants the government to pay for or at least continue to subsidise services we enjoy. Our contention is that since we’ve paid tax to the government it must deliver services in return. And talking of tax, I don’t expect it to reduce to match the hike in the prices announced. Remember that the GST has not been implemented yet. Doing so will cancel the impact the government want to achieve, that is to earn what it will lose from oil revenue. The bottom-line is this:
To fund government projects when oil revenue declines or depletes it has to go after alternative sources of income, which is more taxes from the people and businesses or, at this stage, taking back subsidies.
In the coming years we have to be prepared to endure more financial pain. Think about these:
1. Income will not rise as fast as to match higher cost of living, leading to little or no savings, which will affect welfare of the retirees with low savings in 20-30 years.
2. Crime rate will rise as desperate people will plunder and steal to meet their basic needs. Policing the streets and housing estates will be stretched. People will become more suspicious, less trusting, less sociable, more isolated.
3. The quality of life among the average income group will decline as they live on standard and sub-standard quality food and healthcare.
4. Society will be more, not less, corrupt. Any wage increase will not be able to match rising cost, which has not built into it the inflation factor. As people fear for their future security they will risk being caught by openly asking for bribery.
5. Generally a very unhappy Malaysian society who is not used to being taxed so heavily to live in this land which is supposed to be a-plenty.
6. Unhappiness leads to anger and desire to change government in the hope that the people will see better days ahead.
7. Trust in the present government will diminish in the belief that they have not managed the economy well under the 52 years of continuous rule.
8. The Barisan government is trapped in a Hobson choice situation but Malaysians will not want to be sympathetic nor understanding because their thinking is that the government had not been prudent, nor far sighted in managing our natural resources.
9. The 13th general election may produce another crossroad situation for Malaysians.
Who suffers? Those middle income families and those in debt, especially having bought new houses and expensive cars. Interest rates will rise which means higher loan repayment. They may end up unable to service their loan in a timely manner. As ringgit appreciates our exports will be less competitive, which may give rise to reduced output, retrenchments, even closures. Cheaper imports may not translate to better demands as luxury goods will be avoided. Even those who can afford may modify their spending patterns. In general, shopping malls will see less businesses. Eateries will jack up prices of cooked food, groceries will increase their margins to cover higher living expenses. A plate of mixed rice now at about RM5 can easily increase to RM6-7 overnight. Overall families will have to be prepared for a 20% increase in household expenses, which will be intolerable if they have not been able to save even that amount.
Who else suffer? Children of course. The aged parents. Travel agencies. IT stores. Book stores. Electrical appliances stores. Fast food chains. Car dealers. Tuition centres. Maid agencies. But some wives may be forced to work to supplement their husband’s income. Grandparents will be called out of retirement to help supervise their grandchildren.
As inflation rate rises, so will anger. Protests may be more common and some politicians will take advantage of the people’s grouses to win support. The marginalised poor will ask what is going on. In short, change may be coming sooner than expected. Their thinking is this:
If you can't fix the problems then let someone else do it.