Petrol subsidy reductions are bad because it is going to cause a severe and sudden jump in inflation that most people are not ready for. As Malaysia has no social safety net to speak of, many lower income groups in the city will be caught without mercy. This will give rise to more social problems in the near future.
This is basically moot. Any social security net must be funded by taxpayers, which in the end reduce spending power of those paying taxes. Read more about Europe and their social security, don't forget to briefly study their tax rates as well.
People think that when the government is paying for it, no one is losing anything. Those very poor who are supported by social security have their meals paid by the tax-paying workforce.
The deal is everyone is complaining, not only the poor. Everyone doesn't want their cost of living increasing, irregardless if they're well off. They don't care about the poor. The poor are but only a means to advance their cause.
In fact, with respect to the lower income groups, such a policy would actually benefit them. The biggest benefactors of the fuel subsidies are middle to high income earners who drive a lot. Many will argue that low income groups benefit from cheaper goods, but so do the higher income groups which benefits even more because they consume more goods and services. With the subsidy, the marginal benefit definitely goes to those that consume fuel a lot, and I doubt those who consume fuel a lot are poor. Take this with a pinch of salt, if you own a car, you're already top 80% richest in the world.
Of course ideally, all savings from the subsidy cut should be returned to the people, my preference being through tax-cuts. We not being able to get that doesn't mean we should not do something to reduce the nation's losses due to subsidy-driven elevated demand.
Also, people are never ready for inflation. Never did never will.
Petrol subsidy reductions are bad because Malaysian businesses in general were built in an insulated economic environment. Sudden removal of subsidies will suddenly expose many businesses to the prospect of failure. It will be an economic tsunami!
If an industry is alive because of subsidies, and that industry is exporting, what happens is we are subsidizing consumption of other nations, incurring a net lost on our part.
The reasoning isn't too hard to digest. If a Malaysian firm makes a good for a cost of RM 10 and needs subsidy in order to sell competitively at RM 5, the margin is paid by taxpayers. The benefactors are the workers who would otherwise lose their jobs, the owners who draws dividends, and the foreign consumers whose consumption is being subsidized. Many, Mahathir's school-of-thought especially, would argue that "hey! at least we are creating jobs!". True, we are creating jobs. But these jobs are not increasing national income, they are drawing their incomes from everyone else's incomes.
Just imagine subsidizing Petronas' oil so we can sell it to Singapore or Thailand at cheaper prices. Thais and Singaporeans who drive the extra mile to get our cheaper fuel is good business for pump station owners. Their business is financed by the Malaysian public. That's exactly what's happening to many of our businesses. We don't want this. I assure you, we would do much better if we had just given out these subsidies to the poor without any obligation to work, freeing their labor for more profiting industries.
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