Power tariff – the last straw that broke the camel’s back?

Liew Chin Tong
Dec 6, 2013


The spate of new taxes and price hikes, the latest being the electricity tariff hike, have caused me to doubt whether the government under Najib Abdul Razak has any idea about the macroeconomic risks that Malaysia faces.

Against the backdrop of an uncertain global economy and the likeliness of the quantitative easing tapering, domestic demand is crucial in sustaining the Malaysian economy. Yet the spate of new taxes and price hikes will produce an opposite result: the further decline of domestic demand.

Will the electricity tariff increase become the last straw on the camel’s back that will see the Malaysian economy collapsing due to the confluence of several domestic and global factors?

The electricity tariff will be increased by an average of about 14.89 percent for Peninsular Malaysia, and by about 17 percent for Sabah and Labuan from next year.

The average electricity tariff in Peninsular Malaysia will be up 4.99 sen per kWh or 14.89 percent from the current average rate of 33.54 sen/kWh to 38.53 sen/kWh.

For Sabah and Labuan, the average tariff will be up 5 sen per kWh or 16.9 percent from current average rate of 29.52 sen per kWh to 34.52 sen per kWh.

GST will cause inflation

Currently, Malaysia is already burdened with risks of a potential crisis due to the following factors:

First, the goods and services tax (GST), which will be introduced in April 2015, will eat away disposable income and hence depress domestic demand, as well as cause inflation, at least in the first year.

Second, quantitative easing is likely to end by then. The interest rate is likely to be higher in 2015 and a higher interest rate will depress domestic demand further. As the US dollar appreciates, imports will become more expensive.

On the other hand, exports may not be too good, even with a depreciated ringgit largely because job growth in the US and Europe would still be slow, thus demand of our exported goods would not be high.

In addition, some US manufacturers are moving back to the United States, which means room for Malaysia’s export-led growth is limited.

Third, I am of the view that palm oil price is likely to further soften in 2015, mainly due to oversupply and a potential soya super harvest next year, despite the Haiyan catastrophe causing short-term shortages of coconut oil.

The potential softening of palm oil prices will have major political consequences in Malaysia as small owners in small towns and rural areas depend heavily on commodities.

Will there be a property bubble?

Fourth, will there be a property bubble? What would be the combined effect of electricity tariff hike, GST implementation, higher interest rate (mostly as a result of quantitative easing tapering) and lower commodity prices?

The moment somebody begins to default, there is risk of a meltdown, especially in the context of very high domestic debt-to-GDP ratio.

Beyond that, the rating agencies’ greater scrutiny of Malaysia’s poorly managed public finances will likely result in more expensive borrowing costs to the government, and consequently push up further the interest rate for everyone else.

Fuel prices are never easy to gauge, but the petrol price may fall as the supply of shale gas comes through.

The fall of petrol price will be a double-edged sword. It would mean less subsidy payment, thus helping to reduce the deficit,

However, this also means eroding Petronas’s contribution to the public coffers, thus potentially resulting in widening of deficit, which in turn further erodes the government’s creditworthiness.

The government needs to have the big picture in mind and coordinate its macroeconomic policies to avoid the potential meltdown. Any hard landing is going to harm millions of ordinary families, hence efforts should be made now to prevent such an occurrence.

LIEW CHIN TONG is the MP for Kluang and DAP national political education director.

  1. #1 by cskok8 on Friday, 6 December 2013 - 7:20 pm

    And the idiots still want to build a bridge to Sumatra and a phallic symbol at Stadium Merdeka.

  2. #2 by Bigjoe on Friday, 6 December 2013 - 8:47 pm

    Based on past evidence, these pains to voters – 4 years before the next GE, typically have far less impact by the time election come around. Its why they are bunching them all up front – in the hope that the voters won’t hold it against them then – giving them the money to spend their way to victory then.

    Its of course mass corruption – perfectly legal in fact – official national corruption.

    What will remind people is economic growth slows down – cost remain high but their income don’t get better – in fact, its expected. So ultimately they will spend as the election gets near – the problem is that its not so simple. Loose global monetary policy means that stimulus is highly inflationary – inflation is a tax on the poor and no one will believe them when they deny it.

    Its going to be inflation that gets them..

  3. #3 by sheriff singh on Friday, 6 December 2013 - 11:13 pm

    We are now seeing what Najib’s ‘Transformation Plan’ is all about. We might be heading for doom soon.

  4. #4 by tak tahan on Friday, 6 December 2013 - 11:43 pm

    The spate of new taxes and price hikes, the latest being the electricity tariff hike, have caused me to doubt whether the government under Najib Abdul Razak has any idea about the macroeconomic risks that Malaysia faces. LCT

    You don’t know about the latest Najibconimic meh..’beep beep’,the fastest n most furious in the race n religion supremacy in the world..Hat off to new Ketuanan 1Melayu En Prime minister..Hidup jaguh kampong 1Melayu PM !!

  5. #5 by yhsiew on Saturday, 7 December 2013 - 5:31 am

    Agreed. The electricity tariff hike will have a devastating socio-economic impact on the country as nearly every industry relies on electricity to produce goods and services. The hike will result in higher cost of goods and services. The increase in cost not only dampens domestic demand and stifles investments, but also burdens the consumers and diminishes their purchasing power. The tariff hike certainly does not augur well for the national economy and is likely to trigger far-reaching repercussions throughout the country.

  6. #6 by Noble House on Saturday, 7 December 2013 - 5:43 am

    Those in UMNO we see today are no different to the story about rags to riches – the kind of stuff that dreams are made of. Except that dreams are readily available and exclusive to those who know how to play balls and made it to the top.

    Decades of political patronage in the country has resulted in cronyism and nepotism, a civil service corrupt to the core, our education standards hitting rock bottom, our Treasury depleted, the economy on the verge of bankruptcy, to name some. The rot is too deep and not easily rid of for the new incoming government. We are lucky if it takes 10 years to do all that.

    How unpalatable though this may be, we have to admit to ourselves the sad reality that Malaysia is a failed State!

  7. #7 by boh-liao on Saturday, 7 December 2013 - 11:47 am

    Rakyat M’sia must realise how SAD n BAD dis nation has become under racist, greedy, n oppressive UmnoB

    No comparison between UmnoB kaki with Nelson Mandela:
    Never, never and never again shall it be that this beautiful land will again experience the oppression of one by another.”

    Shamelessly UmnoB kaki proudly proclaimed dis is 1UmnoB Melayu land & we must b given big fat contracts; big fat posts in gomen, GLC , n private sectors; n MORE, more, more of everything, co we r UmnoB Malays

  8. #8 by boh-liao on Saturday, 7 December 2013 - 11:49 am

    we must b given MORE, more, more of everything, cos we r UmnoB Malays (paspot 2 filthy wealth n power)

  9. #9 by cutedevilnabil on Saturday, 7 December 2013 - 5:05 pm

    kikiki :-D what’s Macroeconomic ? what is that er! ?,all I know since the days I was accidentally propelled by my mentor Mr. Mamak bin Kutty to occupy the highest office of this god-forsaken apartheid Nation’s is nothing but fraud,I’m the puppet and he is my master strings puller behind scene….oppssss I was told by my master Mamak bin Kutty that’s it,Malangsia’s needs not follow those western Nations so called economic policy,our is the best of the best that’s it,the Nep’s survived half a century,and now Beep Beep for another half century before end of the world….

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