About Nick: i am an economist based in malaysia. I write about development economics, while sneaking in a pop culture reference or two.

On Price Hikes, Citizens and their Government

Published in The Edge Malaysia, Dec 30 2013 – Jan 5 2014.

It is pretty clear that costs of living in Malaysia are going to rise substantially as we head into 2014. From the removal of sugar subsidies, to rationalization of oil subsidies, to an increase in electricity tariffs and, most recently, to toll charges, the budget constraint for Malaysian households will be tighter. Yet, this is not the end of it. Oil subsidies will have to be rationalized further at some point. Mortgage rates will also have to go up sooner rather than later as the United States Federal Reserve begins tapering and, in due time, hiking the United States benchmark interest rate, thereby having a monsoonal impact on interest rates around the world.

From the perspective of an economist-in-training, I can see the economic logic in all of this. The government does need to reduce its fiscal deficit. Tolls will help somewhat with internalizing congestion externalities on our highways. Higher future mortgage rates may put downward pressure on housing prices, particularly in urban areas. Moreover, markets such as the sugar market and the petroleum market have been distorted for so long by subsidies that such distortions have fed, and perhaps have even been institutionalized, into the mindsets of Malaysians. In general, it is always socially beneficial to remove distortions and although I do understand that, at one point or another, the government believed that the political benefits of subsidies outweighed the economic costs, I do think it is high time we fix such distortions.

However, one can also argue that, despite the apparent economic logic in all these distortion-fixing policies, why do they all have to come altogether? In terms of sequentiality, why could government policies on hiking costs be more spread out over time? From the perspective of a citizen, I can see why Malaysians are concerned. But you know what, while I certainly do not speak for any other Malaysian other than myself, I am willing even to accept that the government can hit me all at once in the wallet.

Want to increase toll rates? Fine by me. Want to cut oil subsidies? No problem. Want to cut sugar subsidies? Excellent. Want to do them all at once? Go ahead. However, in the spirit of believing in the best in people (or governments), I will assume the government is doing all of this solely because it needs to rationalize and consolidate its financial situation, and internalize the externalities from market distortions. And if so, I am happy to do my part as a citizen of this country and support the government because I think that, regardless of whatever side of the political divide I am, I should always want the government in power to do well because it means my country will do well, which is what I am primarily concerned about. Thus, I can fully accept all these price hikes and I can fully accept all these price hikes coming together all at once.

What I will absolutely not accept is if the government does not take responsibility for its own actions towards achieving fiscal consolidation as well which is, after all, the objective of these measures. If I and my fellow citizens are going to tighten our belts as a consequence of these policies, we fully expect the government to do the same. A government and its people are supposed to be partners in their shared journey of development and progress. If the people play their part, the government better play theirs.

As such, I will be incredibly disappointed and angry if I see unnecessary expenditures in the 2014 Auditor General’s Report once again. I will be incredibly disappointed and angry if I see bloated purchases of assets or even operating costs. If I discover that the government paid RM5,000 for a laptop that should only cost RM2,000. Or if a civil servant takes a business class flight from Kuala Lumpur to Kuching, or further even to Beijing or Melbourne or Dubai. Or if civil servants on duty for the country stay in 5-star or even 4-star hotels. Or if ministries host “retreats” in expensive resort hotels around Malaysia. Furthermore, I am extending this to even the smallest, in magnitude, of purchases. I will be incredibly disappointed and angry if I see that the government paid even RM5 for a cup of iced Milo that can be bought for RM2.

You see, these are not matters of policy. They are matters of responsibility. For instance, one can certainly debate the worthiness or the costs and benefits of extending the Bantuan Rakyat 1Malaysia (BR1M) program. One can certainly debate the notion of undertaking a public private partnership agreement with some foreign firm to undertake an infrastructure project in, for instance, the Sarawak Corridor of Renewable Energy (SCORE). What is absolutely and irrevocably not up for debate is overpaying more for a given purchase or acquiring unnecessary items. Or holding conferences in spa resorts in Tioman Island, for example, when you can easily hold it in your own offices in Putrajaya.

So, yes, I am more than happy to play my part and tighten my belt in light of all these cost hikes. I am even willing to explain the economic logic behind these policies to people I know who do not have as clear an idea of why these price hikes need to happen or why they need to happen all at once. But, as a humble citizen of this country, I will be holding my government accountable. I will be closely monitoring news of excesses and I will certainly be closely scrutinizing the Auditor General’s report for the upcoming year. If indeed, my dear government, the citizens and you are in a true partnership for the betterment of our nation, then not only do we have to play our part in fiscal consolidation, we fully expect you to play your part as well. Personally, I do wish you all the best for the upcoming year.

Finding One’s Economic Faith

Should BR1M Become a Conditional Cash Transfer?