SUBSIDY CUTS: Eng says that subsidy cuts on petrol, diesel, LPG and sugar are quite small and as long as the government can clearly demonstrate that the money is being used for a good purpose with minimal leakages, sentiment should not be affected by this alone.
OSK Research Sdn Bhd (OSK Research) in its research report yesterday said while it was not surprised by the quantum of the subsidy cuts, which apart from sugar were much smaller than originally proposed by the Performance Management and Delivery Unit (Pemandu), it was however taken by surprise by the speed with which the cuts were implemented, as it had felt that the government would resist making unpopular economic reforms for now.
However, as the cuts were small, the research house believed the government had made the right decision in moving ahead with the necessary economic reform after a pause of some seven months.
It added that while these cuts were small, Pemandu’s original proposal was for cuts to be made every six months, it believed that gas prices and toll rates would also be adjusted in the future other than those for petrol and sugar.
“While there may be some quarters who grumble, the cuts are quite small and as long as the government can clearly demonstrate that the money is being used for a good purpose with minimal leakages, sentiment should not be affected by this alone,” commented Chris Eng, director of OSK Research.
He pointed out that, as there were no cuts on gas subsidies, toll rates and cooking oil, the impact on the broad market would be limited. The cuts on sugar subsidies would likely see food and beverage (F&B) companies passing on the cost to consumers as the quantum should be small. As for the hike in petrol prices, as it was only a 2.8 per cent increase for now, it saw minimal effects on auto sales and retail sales as well as toll road usage.
On the effect of the subsidy cuts on inflation, he said, “While there may be a slight upward push to the inflation rate but our house economists are maintaining their forecast of three per cent given the slight cut in subsidies for now.”
He added that if the more than RM750 million saved in 2010 from the cuts alone was put to good use such as reducing public debt, he believed that the subsidy cuts would indeed benefit future generations of Malaysians.
If, however, the savings were used to fund development projects, such as had been suggested for the KL MRT, tight controls and open tenders should preferably by implemented to avoid future accusations of leakage.
He highlighted that there should be future cuts in gas subsidies given the political will and it could see Tenaga Nasional Bhd (TNB) getting its electricity tariff hike.
While the research house had expected delays in the KL MRT contract award, the possibility of fund raising through subsidy cuts did raise the likelihood of Gamuda Bhd (Gamuda) and MMC Corporation Bhd (MMC) securing the project earlier rather than later.
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