Tony Fernandes CEO Blog

I’ve always been a strong believer in market forces. When they are not manipulated to serve a few clever bankers they have that canny ability to set the right price.

Subsidies, in my view are a form of market manipulation. You could say it is benevolent market manipulation because there is that noble aim to make life easier for those living with less. It also gives the warm cosy feeling when you know there is the state there to watch your back when the price of oil goes a little berserk.

All well and good, but subsidies are a rather crude tool for providing citizen welfare which has become a bane to economic growth and I fully support proposal to scrap them

As popular with voters as they are, a startling 70 per cent of subsidies are enjoyed by the rich who don’t actually need them. I find this unreal and frankly a little embarrassing -- it’s sort of like a young man beginning to earn his own keep and yet refusing to move out of his folks’ place.

Subsidised petrol for one has become a real menace to our economic progress. Artificially cheap petrol keeps people happy for as long as the government can afford it but it threatens to break the bank account when the price of oil catapults to insane levels as it is wont to do in recent times. And so here we are today realizing that it’s time to grow up and live in the real world where we pay real prices.

It will be inconvenient at first because of the adjustments we will have to make. But in the long term companies will be forced to innovate, improvise and think creatively to bring down costs. Surely that can’t be a bad thing.

I do hope that the savings from subsidy cuts will be spent wisely. We have invested plenty on multi-lane highways but not enough in education, universities and meaningful R&D so it makes sense to channel more money there.

My final, but no less important point on the subject is let us not just look at the obvious RM103 billion we can save by ending direct subsidies. There are the less obvious indirect subsidies that companies like Malaysia Airlines receive through state support and preferential treatment.

MAS still gets its turf well protected and of course this distorts the market prices of air tickets. When government departments book tickets with MAS, they pay full fares when they could be getting discounts if they booked through travel agents. All airlines operate from the starting point of full fares but give discounts according to the volume of ticket bookings. When government departments are forced to pay full fares each time it begins to look like a subsidy to me.

Invariably you will find that where AirAsia is not allowed to fly, consumers have to pay higher fares. Just look at what it costs to fly to Melbourne compared to Sydney. Because of restrictions, a return ticket to Sydney from Kuala Lumpur at full fares today, is over 70% higher than what it would cost to fly to Melbourne. This is really an indirect tax on consumers which we’ve long lifted from other strategic industries like telecommunications. Celcom competes and fight with the likes of Maxis and DiGi and I think Celcom CEO, Datuk Seri Shazalli Ramly is doing a great job standing up against his very formidable challengers. Over time Celcom will only improve.

So I see no point if we embark on a half-hearted reform by only dealing with one dimension of market subsidies. There needs to be on the whole, a more liberal, lively and fairly regulated market place. Only then will we see a real transformation of Malaysia’s economy.