THE lifting of the fuel cap essentially marks an end to the fuel subsidy even for the B40. The “targeted fuel subsidy mechanism” is basically a cash transfer scheme that lacks the characteristics of a subsidy, and this is worrying because cash recipients do not have the obligation to spend on fuel.
One of the most important considerations that, in my opinion, is missing from the subsidy debate is the impact of higher consumption of subsidised goods. While it is true that subsidies will likely lead to higher consumption of the goods, we should also consider the impact of the change in consumption.
To be sure, goods like sugar would lead to negative impact on health if subsidised. However, for goods like fuel, which households use for mobility, a subsidy on fuel means that households can travel further from where they live (they will have better mobility), and as a consequence, they could be exposed to more opportunities.
A truth that we need to acknowledge is that cities tend to centre around a point. In Urban Economics, this point is the central
business district (CBD) where most of the high-value jobs are located (at least theoretically). A “catchment area” of a city is the area
surrounding the city that can access the CBD (above a certain accessibility threshold).
In Malaysia, the CBD would be the Kuala Lumpur city centre and the catchment area would probably be the greater Kuala Lumpur conurbation. Intuitively, areas that are closer to the CBD would be more valuable and thus would fetch a higher price (think of Bangsar compared to other areas), and therefore would be unaffordable to poorer households.
As a consequence, the poorer households would usually be located at the outskirts of the city, which means they would require a much longer journey to their place of work. This means that, theoretically, poorer households should take longer journeys to the CBD on average compared to richer households. Therefore, a fuel subsidy would benefit poorer households, as they spend more on fuel on average.
The CBD is also where most high-value jobs are located due to the “agglomeration” effect where firms tend to locate close to each other to reap the benefits of economies of scales, among others.
Due to the concentration of high-value jobs in the CBD, for poorer households to move up the social ladder, they will need to have access to the high-value jobs. As such, (physical) mobility is a crucial factor for social mobility, and a key determinant of mobility is the cost of mobility – fuel cost, public transport cost, and etc.
As long as the “last mile problem” remains (getting from home to the station and from the station to the workplace), public transport will be unreliable as a catalyst for social mobility, so households would have to depend on private vehicles, which need fuel to run.
Mobility is crucial for social mobility; cheap transport option plays an important role. Fuel subsidy will fill in that role while we wait for the government to iron out the flaws of the public transport system.
NG YEE HANG