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The Najib administration has received a report proposing a fuel consumption tax which could cut next year’s RM7 billion subsidy bill and also help cut the budget deficit to 5.4 per cent. The report by the Performance Management and Delivery Unit (Pemandu) had advised for the tax to be passed on to consumers as tax loss incurred by the government is estimated at RM6.5 billion this year. Currently, Putrajaya is giving up a tax collection of 58 sen per litre of petrol under its subsidy scheme. The government cut subsidies for fuel and sugar last week to save RM1.18 billion annually. It is understood that Prime Minister Datuk Seri Najib Razak is not expected to introduce the consumption tax yet although he is hard-pressed to rein in the budget deficit to 5.4 per cent next year from the current 5.6 per cent. Najib, who is also Finance Minister, said on Thursday the government had no plan to raise power prices any time soon as further studies were needed to assess the impact on the economy following reports that the Cabinet had agreed to revise electricity rates. Analysts are sceptical the government would look to increase electricity tariff before a possible elections next year, but should there be a hike, it may be between 1 and 2 per cent. Opposition leaders have criticised the government for cutting subsidies to the consumers while still providing RM19 billion in subsidies to independent power producers supplying the national power grid. Malaysia boasts cheap power and labour rates to attract investors although foreign direct investment (FDI) has been diving over the past few years. According to documents made available to The Malaysian Insider, the government projected spending RM8.25 billion on retail petrol, diesel, liquefied petroleum gas (LPG) and sugar subsidies without the “subsidy rationalisation” programme. The subsidies form part of the RM212 billion Budget 2011 which being debated in Parliament. The budget is the start of Najib’s ambitious New Economic Model (NEM) to run plans and programmes to lift the country to a high-income economy by 2020. Pemandu under its chief executive Datuk Seri Idris Jala is running the Economic Transformation Programme (ETP) that involves 190 projects and business opportunities over the next decade worth RM1.4 trillion to generate a RM1.7 trillion economy by 2020. Idris (picture), who is also a minister, had said that further rationalisation was needed to decrease government expenditure and ensure the country is in line with upward trend of world commodities. He had earlier predicted Malaysia could be bankrupt by 2019 if it did not begin to cut subsidies for petrol, electricity, food and other staples, which he said cost the country RM74 billion last year. Pemandu itself has been heavily criticised as it will cost the government some RM131 million to pay for its staff and the reports and plans done by consultants, most of whom are from the Boston Consulting Group and McKinsey. Some of Pemandu’s budget is paid by Khazanah Nasional Berhad, the country’s sovereign wealth fund that also usually sources its reports from the consultancies. Pemandu itself has outlined a programme to cut subsidies every six months under both the ETP and Government Transformation Programme (GTP). According to a recent report by The Economist, prices of goods and services will rise from 2011 to 2015 as the Najib administration moves to cut subsidies gradually and rein in a deficit budget. The price of fuel and sugar went up on December 4 as part of Najib ‘s ongoing drive to reduce subsidies although a Cabinet minister had assured no price hikes for the rest of the year. The price of RON95 increased by five sen to RM1.90 per litre, diesel by five sen per litre to RM1.80 and liquefied petroleum gas (LPG) by five sen to RM1.90 per kg. Sugar also cost 20 sen more at RM2.10 per kg. Through these price hikes, the government expects to save subsidy payments of RM621.9 million on RON95, RM213.2 million on diesel, RM63.5 million on LPG and RM283.5 million on sugar a year, or a total of RM1.18 billion annually. The Economist Intelligence Unit (EIU) country report also expected the government to introduce the Goods and Services Tax (GST) within the next few years and predicted an annual inflation of 3.4 per cent from 2011 till 2015. The EIU report pointed out that gradual liberalisation would spur growth in financial services and increase the competitiveness of Malaysia’s financial system, especially in Islamic finance products.From The Malaysia Insider.Salut, Merry Christmas and Happy New Year to one and all. Drive Safe, arrive safe.