Dr Jeyakumar Devaraj, the
former MP for Sungai Siput did an excellent and comprehensive article recently
(https//aliran.com). This
blog post is a poor summary and reflection of that article.
According to government
statistics, poverty is virtually non-existent in Malaysia—the Barisan Nasional
(BN) government pegged its incidence at 0.4% of the population in 2016. (But the U.N. Special Rapporteur feels it should be
16-20%)
But this was because the poverty line was fixed at very
low levels then. It is still unrealistic now: RM920 per month for a family of
two adults and three children works out to a per capita income of US$1.60 per
day. A more realistic poverty line would be a household income of RM3,000 per
month. That would be about 50% of the current median household income. It also
means around 25% of Malaysian households are below this income level.
There are many who are perplexed by the persistence
of poverty in Malaysia. The Malaysian economy has been growing steadily over 50
years, from a GDP of RM10.3bn in 1970 to RM1.45tn
in 2018. The economy
has diversified from an agricultural base to manufacturing,
which contributed 23% of GDP and employed 17.9% of the work force in 2015,
compared to 8.8% and 11.7%, respectively, for the agricultural sector. Malaysia
is also a significant petroleum and natural gas
exporter, accounting for 13% of total exports in 2018.
Per capita income in real terms (after taking into
account inflation) has increased ten-fold between 1970 and 2018. The BN
government however committed substantial resources for affirmative action to
uplift the lot of the Bumiputera population (Malays and the indigenous peoples
of the peninsula, Sabah, and Sarawak) since the institution of the New Economic
Policy (NEP) in the 1970s. This may have amounted to RM1 trillion or more.
Why, then, is there poverty in Malaysia? And why
does the Bumiputera community still make up some 80% of the bottom 40% of the
population (B40) when they only constitute about 65% of the population?
Some like our PM blame laziness—that the Bumiputera
population has been pampered and they are unable to stand on their own feet.
But the truth is a little more complicated. It has to do with the way that
Malaysia is integrated into the global economy.
Source: MalaysiaKini
Prices Fluctuations for Agricultural Commodities
There are around 172,000 paddy farmers, 375,000
rubber smallholders, 275,000 oil-palm smallholders and a lower number of coconut,
cocoa and pepper smallholders in Malaysia. Over 85% of them work on plots of
less than five acres.
They are all affected by the prices of their
commodity on the world market. And price is characterised by a marked imbalance
in “market power”. A small number of buyers with deep pockets and accumulated
stockpiles face against millions of poor small farmers spread out over several
countries.
This inequality in market power has led to fluctuating
(downward in real terms) commodity prices ever since the nations in Asia and
Africa gained independence. This problem isn’t uniquely Malaysian—it affects
farmers in other third world countries as well.
Low-wage Economy
Factories employ 18% of the Malaysian workforce.
However, the vast majority of factory workers take home less than RM1,500 per
month. This is because Malaysia’s industrialisation strategy has been on low
cost of production. The Malaysian government set up free trade zones to attract
multinationals looking for places to outsource some portions of their
production chain. In addition to tax-free status for these zones, Malaysia also
provides electricity at cheap rates as well as low-waged labour.
This strategy in some way succeeded: Malaysia is
now the world’s largest exporter of electronic components. But the downside of
this industrialisation strategy is that Malaysia is now locked into global
chains of production that use the threat of transferring production to another
third world country where wages are even lower.
Fiscal Constraints
An effective way for wealth sharing is by
subsidising essential services and instituting cash transfers to sectors in
need. Malaysia has already done that, as the 2019 federal budget suggests:
· Education is
practically free from primary to secondary level. The fees charged are
minimal—between RM100 and RM200 per year. Most primary school children are
supplied with free textbooks. Parents only need to cover the cost of school
clothes, transport and canteen meals. The Ministry of Education was allocated
RM60.2bn in the 2019 budget, 19.1% of the total.
· The Ministry
of Health, which has a budget of RM29bn (9.2% of the total) maintains 2,860
health clinics, distributed throughout the nation, as well 141 hospitals. In
2017, there were a total of 2.37 million admissions to government hospitals,
compared to 1.05 million admissions to private hospitals.
· The Ministry
of Women, Family and Community Development, with a budget of RM2.4bn, gives
financial aid to some single mothers, old persons without family support and
severely incapacitated individuals. The quantum is less than RM400 per
month—but still does provide significant relief for the families that receive
this help.
· The Ministry
of Agriculture (2019 budget: RM4.4bn) has several programmes targeting paddy
farmers. The paddy-production incentive scheme pays out an additional 75 cents
per kilogram of paddy that the farmer sells to the mill, thereby doubling his
earnings. (RM281m has been allocated for this scheme for 2019.) Fertilisers and
pesticides are provided free to paddy farmers (with a budget allocation of
RM232m). The previous government gave around 70,000 traditional fishermen a
monthly stipend of RM300.
· The Ministry
of Rural Development (2019 budget: RM8.4bn) provides infrastructure for the
rural population—bridges, roads, community centres—and helps in repairing or
even building houses for the rural poor.
Some suggestions to improve the safety net include:
·
Increasing
the health budget to 4% of GDP. That would require an extra RM29bn.
The rationale for the increase is that government hospitals and clinics are
severely overcrowded and wait times to see specialists are long. This has
forced quite a number of people to turn to the private sector, which is
expensive.
· Subsidised
tertiary education. At present college students can take loans from a
government-run agency, the PTPTN. A three-year degree course in a private
university will saddle the graduate with an RM70,000 loan. The proposal is to
reduce fees drastically by giving grants amounting to 90% of academic fees. This
would require approximately RM13bn per year.
· Subsidised bus-based
public transport in all our towns and cities. This will reduce
transport costs as well as Malaysia’s carbon footprint and is a much cheaper
alternative to building train-based transit systems.
· Monthly cash
transfers of RM300 to the poorest 20% of households – the cost could be
RM4.5bn.
There are also suggestions, among others, to
increase the budget of the Department of Welfare, increase the stipend given to
single mothers, provide subsidised housing to the population and take over the
maintenance of low-cost residential flats (many of which are in a deplorable
state). The problem here is that all these good ideas, require additional
funds.
Total federal revenue for 2019 is estimated at
RM261.8bn. But the total budgetary allocation for 2019 is RM314.5bn. That means
RM52.7bn has to be borrowed—a fiscal deficit of 3.4% of GDP for 2019. (The
Malaysian GDP in 2019 is projected to be RM1.55tn.)
The federal government debt is about RM750bn, the
government needs to sell securities worth about RM75bn in the course of 2019 to
roll over the bonds and securities that are maturing this year. This is in
addition to the RM52.7bn that has to be raised to meet this year’s budget
shortfall.
There are real limitations to a strategy of
building a more comprehensive safety-net on the back of a larger budgetary
deficit. Doing so will impact negatively on our credit rating and drive up the
costs of borrowing.
A consumption tax is politically out of the
question. The Pakatan Harapan (PH) government came in on the campaign promise
that it would abolish the GST (goods and services tax) and it has done so. It
cannot now reinstitute this tax. And in any case, such a tax is regressive, as
poorer families spend a larger portion of their income than do better-off
families, who save or invest a portion of their income.
Corporate tax in Malaysia is now at 24% (used to be
40% in 1988) and the finance minister has said he will reduce this even further
soon! The reason is that Singapore only has an 18% corporate tax rate, and
Thailand, 19%. It is a classic “race to the bottom” scenario.
So, what then is the solution for Malaysia?
(This section is largely the writer’s perspective.)
We need to re-look at our tax regime. The 0.1% of
our population need to pay higher taxes, i.e. those earning emoluments in
excess of RM2 million. Corporates with “super” profits of RM2 billion (or more)
will pay incrementally more. Why must TNB make RM5 billion when it is
benefitting a GLIC rather than the ordinary rakyat? So drop electricity tariffs,
for example, and see if prices of essential foods drop for the consumer.
Bring down or re-negotiate toll rates and see if
that drops transportation costs!
Drop land costs or incentivise developers to build
affordable houses for the B40 and M40.
Focus on renewables and incentivise factories and
residentials to be on solar power.
Privatise some government entities and use the
proceeds to bring down debt.
And see how AI, robotics and re-training could help
lower our costs and improve productivity in agriculture and labour intensive
industries. Surely then we are ready to raise minimum wage to RM1,500 or higher
for an economy headed to developed status.
Incentivise students to learn (write and speak)
Bahasa Malaysia, English and Mandarin if we are to be geared for the future.
And this also ensures employability.
And after all this, we give thanks to God for what
a blessed nation we have and may we move forward with unity and accord in 2020.
Reference:
What will it
take to address poverty in Malaysia? Jeyakumar Devaraj, 23 July 2019 (https//aliran.com)
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