Ivanpal Grewal

Lawyer & political activist

 

 

The presentation of the national budget has traditionally been a source of great political theater with screams of approval (or disapproval), table thumping, smiles and grimaces and most importantly a telling sign of the Minister of Finance’s instincts and acumen.

The presentation of the budget in Malaysia is a rather tame affair compared to the United Kingdom or India. India is unique because its railways have a separate budget that is usually presented the day before the national budget is presented to Parliament.

The budget speech delivered by the Minister of Finance is typically a summarised version containing the main initiatives that will be introduced in the budget and usually, politically propitious measures finds its way into the budget speech as well.

Budget 2016 will be a very important budget for Malaysia because the drop in demand from Europe and emerging markets, weakening ringgit, falling crude oil and commodity prices and fluctuating investor confidence presents a complex set ofchallenges to policy makers.

However, the reforms undertaken by the government in past five years in the form of the Government Transformation Programme (GTP), Economic Transformation Programme (ETP) and the implementation of the Goods and Services Tax (GST) have diversified the government’s revenue base, created domestic engines of growth, ensured greater public consumption and provided strong economic fundamentals that will hold its own despite the growing global economic turbulence. As Margaret Thatcher once said, “Yes, the medicine is harsh, but the patient requires it in order to live.”

Wage growth, accelerating innovation and productivity, cost of living and social mobility remain of concern as we progress on the path of developed nation status we must also ensure that every Malaysian actually benefits from this advancement and that there are tangible effects.

Wages

The government employs less than 10% of the Malaysian workforce so the government’s ability to directly influence wage growth is limited unless it chooses to directly intervene in the market and legislate wage increases. This will be seen as overly socialistic by some.

Wage growth is a major issue because most Malaysians find their levels of disposable income to be very low and this is a major contributing factor to the brain drain. Malaysian employers must invest in their employees and the government must assist this process because we cannot be a high income nation in name only and we must tackle the painful questions of wealth distribution.

I find Singapore’s “Wage Credit Scheme” an interesting proposal that the government can adopt. In essence, the government can commit to double the income of all Malaysians earning less than RM 5,000 in a period of five (5) years by “topping-up” the salaries of those in this select income group jointly with the employer on an equal basis initially but the government’s contribution will cascade lower towards the end of the scheme and the employer would have to fork out more money.

Certain conditions must be met before the employee qualifies for this scheme. It must include increase in productivity, diligence and commitment to the employer, a fix term contract and a willingness to widen one’s skills set. This will ensure that the employer sees this scheme as an investment and as the government will be using public money, the government too must be satisfied that the employee concerned deserves to be part of the scheme.

Accelerating Innovation and Productivity

According to the World Bank, in 2012, Malaysia’s research and development (R & D) expenditure as a percentage of GDP was only 1.1% which is half of the OECD average of 2.2%. Our counterparts in Singapore spent over 3% of their GDP on R & D thus making Singapore one of the region’s most sophisticated economies.

Currently, most production and manufacturing in Malaysia is labour intensive. I propose that the government forms a Productivity, Innovation and Mechanisation (PIM) Fund for the benefit of small and medium industries (SMEs) so they are able to rely less on foreign labour and more on technology. A series of tax credits can also be given to SMEs who participate in this process of embracing technology. This will make them more efficient as well because despite the high initial capital investment the reduced labour costs will make SMEs more profitable in the long term.

The PIM Fund will also assist SMEs who are unable to avail themselves of the current financing facilities and ensure that SMEs in Malaysia move up the value chain of production.

The government should also create a Life-Long Leaning (LLL) Fund to support workers who want to increase their productivity and broaden their skill-set. This will also provide a much needed fillip to open universities in Malaysia.

The third fund I propose is an Innovation and Start-Up (ISU) Fund to encourage more regional start-ups to come to Malaysia and choose Malaysia as an incubator. Private companies can be called in to participate in this fund and those companies investing in the funds can then be given a lead role in commercialising the intellectual properties that are created by these start-ups or even take a lead role as investor or venture capitalist. This will spur the growth of the creative industry in Malaysia.

Cost of Living and Social Mobility

Cost of Living (CoL) and social mobility remains a major concern. The minimum wage must be revised upwards incrementally. As of 2014, the median household income is RM 4585 a month. Between 2012 and 2014, Malaysia experienced a 26% growth in median household income but rising CoL has stunted purchasing power of Malaysian households.

The bottom 40% of society, better known as the B40 has received assistance in the form of 1Malaysia Peoples’ Aid (BR1M) however the middle class who have also experienced a significant impact of the rise in the CoL do not receive the much assistance. I suggest that the government introduce a scheme of tax incentives, credits or deductibles especially for families with two (2) or more children.

I also propose a GST relief in the form of “GST payback” allowing low and middle income families to claim back a certain portion of the GST they have paid or it can be tax deductible thus lowering their annual tax bill.

I also propose that the threshold amount for study loans provided by the National Higher Education Fund Corporation (PTPTN) be increased on the proviso that the parents stand of guarantors for their children who wish to avail themselves of this higher facility.

A Technical and Vocational Study (TVS) Fund can be introduced to encourage more Malaysians to undertake technical and vocational learning especially those who are less academically inclined. This will also address the concerns of lack of employment opportunities for graduates who do not do particularly well in their academic examinations and also reduce our reliance on foreign labour.

The government can also provide incentives in the form of EPF contributions “top-up” where besides employer and employee contributions to EPF; the government also contributes to the EPF account of low-income workers especially those in the B40 to ensure they are able to sufficiently cater for their retirement. This will ensure a more complete social safety net for low income workers.

Originally published on The Star on Wednesday September 30, 2015 MYT 2:55:00 PM

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