Media statement by Lim Guan Eng in Kuala Lumpur on Tuesday, 7^th June 2011: 

Subsidy reduction can improve competitiveness, efficiency and the living standards of the people if supported by a minimum wage 

DAP does not agree with Prime Minister Datuk Seri Najib Tun Razak that Malaysia provided among the largest amounts of subsidy in the world for daily essential goods such as petrol, sugar, gas, electricity tariffs and rice. In fact Malaysia provided the largest gas subsidies in the world per capita in terms of population.

Up to end 2010, Petronas has extended about RM131.3 billion in gas subsidy to both the power and non-power sectors. If the gas prices remain unchanged (power sector at RM10.70 per MMBTU; non-power sector at RM15.35 per MMBTU), about RM27 billion in 2011 would have to be incurred.

The greatest beneficiaries of the RM131.3 billion gas subsidies are IPPs who also benefit from a guranteed buyer through the compulsory Power Purchase Agreement signed by Tenaga Nasional Bhd. The Economic Planning Unit or EPU’s role in this sorry episode resulted in Tan Sri Ani Arope resigning in protest as CEO of Tenaga, who also referred the EPU as the "Economic Plundering Unit".

That is why BN's failure to remove gas subsidies for IPPs does not lend credibility to Najib's assertion that BN's subsidy policy is to provide reasonable amounts of subsidy to the needy target groups. Are IPPs amongst the eligible and needy target groups when they earn billions of ringgit in extraordinary profits from enjoying RM131.3 billion in gas mega subsidies?

Subsidy reduction can improve competitiveness, efficiency and the living standards of the people if it is supported by measures such as the setting of a minimum wage, increasing real wages and removing gas mega-subsidies for the IPPs. Reports show that 40% of households in Malaysia earns less than RM1,500 in average monthly income.

How then can our poor maintain their standard of living with such rising costs when subsidies are removed but our wages have not kept up with inflation? Between 2000 and 2010, wages increased by only 2.6 per cent, meaning that in the last ten years, there has been wage stagnation and our wages cannot match the rising cost of living.

A minimum wage and increasing real wages is necessary towards a fairer and more prosperous society. Najib's admission that less than two million of the 12 million workers pay taxes demonstrates the severity of wage disparities and caused by the lack of minimum wage and rising real wages. There is a need to develop the services sector and a consumption-based economy to graduate to a high-income economy, therefore requiring economic policies that leads to job creation, wage increases, sustainable industries and innovation is essential.

Malaysia is seen to be running a budget deficit that is fast spiralling out of control in proportion to its growth. Household debt to gross domestic product (GDP) is highest in Asia after Japan, from approximately 64% in 2008 to close to 76% or RM581 billion in 2010. In other words, our budget balance and debt control is deemed to be unsustainable in the long run.

That is why DAP questions the rationale, logic and justice of subsidy cuts for small items like sugar and diesel that saves hundreds of millions but not big-ticket items like gas mega-subsidies to independent power producers (IPPs).

The Prime Minister claims that subsidies are akin to 'opium', then why not first remove the 'Big Opium' like corruption that costs RM 28 billion yearly or gas mega subsidies to independent power producers (IPPs) that would cost RM25 billion this year? Any people-centric government would do that first before removing the 'Small Opium' of subsidies in sugar, diesel and petrol which hurt directly the masses, 10 million Malaysians who does not even earn enough to pay taxes.

*Lim Guan Eng, DAP Secretary General & MP for Bagan