Tuesday, November 13, 2007

Petrol for the Poor

Several days ago, in the face of the rising price of fuel on the world market, the Malaysian government announced a proposal to introduce a two tiered petrol pricing system. This system would provide for discrimination on the basis of income level. I.e. cheaper petrol for the poor and the standard pricing for the rich.

Well, does this proposal make sense? In the face of the generally held perception among the middle class that this is another stupid attention grabbing initiative for the government, I beg to differ. This proposal can be made to work, and yes it does make social and economic sense to implement. Especially for the lower income section of the population this is one effort which could make a significant difference in their burden of existence.

Petrol remains the fuel for the majority of cars within Malaysia. Alternative fuel sources, e.g. NGV, hydrogen or electric either require a steep initial investment or remain in the domain of higher end and hence more expensive vehicles. This means that for the large majority of Malaysians, and especially so for the lower income segment, petrol is an essential item if they have to commute.


The Worries of the Poor

For the lower income segment, this problem is further compounded by the fact that by virtue of being poor, they tend to live in low cost housing. Housing cost is very much so location dependent. Low cost housing therefore implies a more considerable distance to amenities and also to social centers where work can often be found. Hence, poor people, because they can't pay for housing closer to commercial or service centers where their jobs are located thereby have to commute further to their place of employment. In addition to that the distance to social amenities essential in city life such as their children's schools is also increased. What all this adds up too is an increased burden in terms of fuel cost just to survive.

On a second level, if we were to represent the nett income of a family to a pie, richer families naturally have a larger pie to start with. Now assuming in an ideal case scenario that a rich and a poor family have exactly the same commuting needs and use exactly the same vehicle (mind you that is not the case as proved earlier. note too that we're talking about needs essential for maintaining a family.) Their petrol cost will be exactly the same i.e. it will take a chunk out of each pie that is exactly the same. However, the effect on both families will still be significantly different. This is because the rich family starts out with a bigger pie already i.e. has more monetary resources available. Hence if you take a same sized piece out from each pie, the smaller pie will logically lose more of it's total pie value. [For those who don't understand the pie illustration, if the rich person has RM1000 of income per month, and the poor has RM250, but the both have to pay RM50 for petrol, that means 20% of the poor person's income but only 5% of the rich person's income. ]

Now, bringing this back to the real world, those of you who have studied economics will understand that needs taper off at a certain level. Within the Malaysian context, for a rich or middle income family then, the rest of the income above the needs level is essentially disposable income. For a low income family however, the needs level is often almost parallel with their nett income on a monthly basis. Increasing the price of an essential item such as fuel will have different effects on the spending habits of low income families vs those of higher income levels. This is because if they need to spend more on fuel, for a high income family, this would mean a little less disposable income i.e. less movie trips, less overseas holidays, but for a low income family, this means less income available to meet their needs i.e. less money for medicine, food, even utilities. Henceforth, an increase in price level of fuel which is an essential will result in a significant degradation of quality of life for the poor.

The Solution

Which brings us to the question, is there a way where this can be implemented? I believe yes, an over-the-dinner-table talk with my dad yielded this result.

Essential to the functioning of any such plan would be a mechanism that would be able to fit these requirements as listed below. Roughly,

i) method of determining income
ii) method of linking income level to mechanism for dispensing of subsidy
iii) mechanism for dispensing subsidy which is least prone to abuse

The mechanism works like this. Using the RTD as the department for the dispensation of subsidies. And proof of income level can be income declaration statements available from the Inland Revenue Board. The mechanism of providing the subsidy will be a debit card only useable for fuel at petrol stations.

Why the RTD and why a debit card?

One of the main problems that would face the government would be how to allocate the subsidy to those who actually need it and would use it rather than reselling it to the rich. The RTD is the one institution in the country that would know what type of vehicle a registrant is using and how many vehicles the registrant has. Hence, a low income candidate would only be given the subsidy if they come to the counter with their income declaration statement, and the RTD would only give out the subsidy if it can be proven that they own a vehicle. Different levels of subsidy for motorbikes and cars would be provided. Perhaps RM100 per month for a car and RM 20 a month for motorbikes. The debit card would be recharged when the candidate comes to renew the registration of their vehicles (a yearly affair for most people.) This essentially puts into place a check and balance at a reasonable time period. The level of subsidy would be fixed for each family, i.e. RM100 a month no matter how many cars (which should be only 1 for low income families) you might happen to own.

Making a difference

Modern society prides itself on it's morality, on it's civility towards it's citizens. Every human deserves the basic right of a reasonable quality of life. With this proposal, we've have a chance to improve the quality of life of the most oppressed segment of our fellow citizens. Don't ignore that chance. Put yourself in the shoes of the office clerk whose only thought everyday is how to feed her 3 children at home. Put yourself in the shoes of the factory worker whose heart aches desperately because he knows he will not be able to pay his child's school fees. Put yourself in the shoes of the pensioner who has served his nation for 30 years but cannot now afford to visit a doctor. Don't they deserve something better?