KUALA LUMPUR: Price controls and subsidies are short-term measures and must be reformed, while the long-term solution is to make the cost of living more affordable by raising incomes, says Prof Dr Geoffrey Williams of the Malaysia University of Science and Technology.
“Subsidies cost the country a whopping RM80bil this year and also affect rich people disproportionately in addition to distorting the market.
“The country needs to move from tackling the cost of living through price controls toward making things more affordable through higher incomes.
“This can be done through targeted cash transfers like the cash aid scheme, but this must be reformed to provide monthly payments as a percentage of income below a certain threshold rather than one-off, lump-sum payments. This is a universal basic income (UBI) scheme.
“To bring prices down in the long term, we need to encourage competition so that firms compete to capture sales through lower prices. This should be done at the same time,” he said.
He added competitive pricing involved removing regulations like approved permits (APs), allowing more companies to supply products such as food in short supply, increasing import options, and reducing other costs, such as transportation.
“There is a need for full market reforms to remove cartels and monopolies, cut out the middlemen, improve competition, and promote SMEs to increase supply options, he said.
“In the New Year, a full reform agenda can begin. For now, there is no quick fix to higher prices, but there are some quick fixes to the cost of living,” he said.
Separately, the government had been involved in efforts to solve the cost of living issue since 2018 with the formation of National Cost of Living Council (Naccol), said council member Ahmad Yazid Othman.
“It went into hypermode post-MCO and evolved into the Special Jihad Team to Tackle Inflation.
“They have identified the top 10 food items consumed by Malaysians and inputs that affect the cost of production, so these will be the priorities.
“We may also need to reintroduce Value Added Tax (VAT) or Goods and Services Tax (GST) and Wealth Tax for the top 5%, but the collection must all be used for cash transfers for the first two years,” said Ahmad Yazid.
To start with the targeted subsidy programme for petrol, he suggests the introduction of a fuel tax that can be charged to those driving cars valued above RM100,000.
“The rest are almost impossible unless the government wants to impose a special point of sale system across all retail and online stores for food items,” he said.
“Special night markets such as Jualan Keluarga Malaysia can continue in order for the government to ensure subsidised goods are available.
“Tax rebates should be given to the private sector that is able to provide affordable prices below the cost of living standards to consumers. It will promote innovation.
“Similar incentives should be given for agropreneurs producing food items,” he said, adding that the government must intervene in selected items used as inputs for agriculture and food production to ensure the market is able to ensure costs remain low for consumers and are not manipulated by cartels.
Ahmad Yazid said SMEs would appreciate a few months of loan moratorium to manage the banks’ overnight policy rate (OPR) hikes.
“It may not necessarily have an impact on the cost of living but will delay them from passing price hikes to consumers,” he said.