While the oil prices have sky-rocketed, the government is against the subsidy policy. Instead, they decide to increase oil prices and according to them, one of the aims is to reduce inflationary pressure. Yes,8% is a pretty hefty figure, after all. In the simplest economic theory, a rise in price (or alternatively, an increase in taxes but this is not the case) would reduce aggregate demand and as a result, would reduce inflation, in general. But what the government fail to realize is the fact that this inflation is not just a general increase in the prices of ONE good (which they seem to be focusing on oil), but it is the overall effect of an increase in the prices of goods/services and I guess we could also relate it to the spillover effect. What that means is simply the effect of the oil prices on other goods/services. For example, an increase in oil prices would mean that most airlines would increase their ticket price as well (evidently) and since their cost of servicing has also increased, thus customers are worse-off. And while some may argue that the public can switch to other alternative transportations, we must first look at the situation from a social standpoint: How effective and accommodating is our public transportations in Malaysia? Will the sudden increase in the demands of public transportation be met in the short-term now that the oil price is high at CURRENT time? They even have the fucking blue bas kilang which I thought was long gone for God's sake! And some of the KTM conditions are clear-cut examples of a third-world infrastructure. So,again, the public are the ones that are worse-off. So yes, the government CAN improve by spending on infrastructure development, which adds up to hundreds of millions (if not billions) more in the budget. I agree that whether or not because of the oil crisis, money is still needed in that sector anyway plus it is for long-term effect. I'm cool with that BUT what I'm not cool about is the fact that the government (ahem) policies do not counter the very core issue - that is, to ease the burden of its citizens. Although macro economic policies like increasing price to reduce inflation may seem like an effective short-term tool,the time taken for it to take effect is most likely to be longer than the rate at which the oil price fluctuates, or in most recent cases, increases. Thus, as Malaysian citizens who are made up of different classes which consist mostly of lower and middle class, subsidies can be a DIRECT form of relief in which the effects are certain in the sense that people actually pay less as opposed to waiting for the market to adjust itself. The danger of the market mechanism is that the equilibrium price may still be considered high even after market adjustments, and so subsidies may counter that problem and secondly, the time taken for the market to adjust is so subjective that people have no guess on how the market price will react after this .Hence, people want certainty - that's just human nature. For example, if you were a customer in a Nasi Lemak restaurant and the price of anchovies, for example, is so high (let's assume due to the water pollution hence less supply) and so many people have lodged complaints of the high price of the nasi lemak. As a customer, would you prefer if the authorities demand the restaurant owner to reduce its price or would you prefer to get money to compensate for the higher price? Personally, I would prefer the latter because getting the money ensures that you WILL have the means to pay for the yummy nasi lemak (though it also depends on how much is given) but waiting for the restaurant owner to adjust its new price would mean that you're not sure when is it going to be effective and how much will the new price be, IF agreed between the owner and authorities. It's kind of like that, I guess. People want some insurance or a guarantee, and subsidies fit the role. It's a matter of mentality, perceptions and considerations.
Maybe some people undermine the effect of subsidies because they don't think the oil price effects are THAT bad, at least not to them. Well, maybe it's because they don't fill in their own tanks, or maybe they just have too much money that they feel indifferent. Unfortunately, not all Malaysians I know are as privileged as you, Mr. Prime Minister.
Higher petrol prices means bigger bucks for the "country", so you say?