Subsidized Oil or Not?

Economically speaking, subsidy is bad as it distorts the operation of the market forces, the forces of demand and supply which will maximise the yield from our scarce resources. Therefore, subsidy on the consumption of oil is economically bad.

However, if the government thinks that subsidy is bad because it distorts the market, then likewise the heavy tariff on motor vehicles to protect Proton is equally bad, if not worse.

We, Malaysians, are not enjoying the subsidy on petrol and diesel freely. We pay for the subsidy well in advance, when we purchase a motorcar.

Take for example, the true price of a Toyota Corolla is approximately USD18,000.00 (RM60,000.00). In Malaysia, because of the heavy tariff, we have to pay RM110,000.00. A CRV is sold in Malaysia for approximately RM150,000.00, with tariff exemption, one can purchase it at the price of RM100,000.00.

On average, we pay the government an extra RM50,000.00 when we purchase such a vehicle.

For that matter, with RM50,000.00 cash received in advance, how long do you think the government can subsidize that purchaser on petrol consumption? Assuming the cost of subsidy is RM2.50 per litre, the government can subsidize at least 25,000 litre (without taking into account the future value of the RM paid in advance by us). Assuming a person uses 200 litres per month (this is very high consumption, RM380 per month before the price increase on 4-6-2008), it can last you 125 months, 10 years and 5 months.

How about proton car? I remember many years back in early 1990s, I saw a TV advertisement about Proton sale in Australia AUS$16,000.00 with unlimited mileage 3 years warranty. At that time, AUS$1 was approximately RM2.20. That was about RM35,000.00. I vaguely remembered that Proton was then sold for approximately RM45,000.00.

We, Malaysians in Malaysia, pay more to Proton so that Proton will make more profit. We are forced to buy Proton because of the heavy tariff which inflates the imported cars.

Hidden Agenda Revealed

The government is making all Malaysians pay more when we purchase motor vehicles so that Proton can survive. The Rakyat are the one subsidizing Proton and the UMNO cronies. If the BN government can force the Rakyat to subsidize Proton and the UMNO cronies, why can't the Rakyat demand reimbursement in the form of lower petrol and diesel price in the country?