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Letter: Wage subsidies to employers better than indiscriminate cash handouts

LETTER | The devil is in the details as the saying goes. Prime Minister Muhyiddin announced a whopping RM250 billion stimulus package on March 26. This is 17 percent of Malaysia’s 2019 GDP. 

The direct fiscal injection, ie the government dipping into its till and handing out the funds, is RM25 billion or 1.7 percent of its GDP. While this amount is much smaller and manageable, nevertheless former finance minister Abdul Wahid Omar said it would push the budget deficit to 6.5 percent of the GDP, from its present 3.5 percent. Others think the fiscal injection is inadequate.

The questions I will ask are how will it be spent? Is that the best way to spend it?

First, I fully support the need to take a proactive stand to meet and overcome the health crisis that has morphed into an economic crisis and possibly a financial crisis. Second, the priority is to minimise the loss of lives, protect our health and frontline workers who are risking their lives to save others. 

Third, the government should minimise the impact of economic dislocation and economic suffering of the vulnerable segments of society. Fourth, the government should not worry about how the stock market reacts. Let the market sort itself out. 

Fifth, because of the size of the budget and the questionable legitimacy of the present cabinet and government, it is all the more imperative that the proposed budget be openly debated in Parliament as is done in most countries. And for as much transparency as possible to be made to the public. 

For a start, government should provide a simple breakdown by categories of how the money will be spent.

A huge chunk of the fiscal injection is used to directly give cash handouts to the B40 (households earning less than RM4,000) and M40 (households earning between RM4001-RM8000). Every B40 household will get RM1,600 and every M40 household gets RM1,000. Singles earning less than RM2,000 will get RM800 and those earning between RM2,001 and RM4,000 will get RM500. Students from tertiary education will get RM200. Pensioners and civil servants of Grade 56 (whose total remuneration is about RM15,000 per month) and below will get RM500 each.

It is not clear how much this adds up to. My rough calculation shows this could cost around RM10 billion. We are not sure if this is on top of the national Caring Aid of RM10 billion to farmers, fishermen etc.

Meanwhile, small businesses from hoteliers to food and beverage operators to retailers are all crying for more help. The government has allocated RM600 wage subsidy to each employee for up to three months provided they are kept on the payroll. But most of them say it is inadequate especially as they face severe cashflow problems.

The way the government has crafted the package raises a host of questions. Does it help those in greatest need? Is it the most effective way to help the needy and keep the economy intact? Is the principle of sharing pain, ie the well off should do their part to sacrifice a bit of their income for the needy, adhered to? Are some groups getting more at the expense of others?

It seems the biggest component of the fiscal stimulus is the direct cash handout to individuals and households. I support that workers in the frontline such as health and security personnel should receive extra income for the risks they undertake. Assistance should go to those directly affected, ie those who could lose their job or wages due to the lockdown. Cash handouts should also be given to the self-employed such as hawkers, taxi drivers, fishermen, farmers, gig workers in the informal sector, not forgetting foreign workers.

But why are the over 1 million civil servants of Grade 56 (whose salary reach RM15,000 per month) and below, and pensioners receiving RM500? They are not affected as they continue to draw salaries even though most, except for essential staff, are not working during this period? 

Is this a carrot to win their political support for a government that was not voted in by the people as the PM himself admitted? Contrast this with real leadership shown by the Pahang state secretary who announced 10,000 civil servants are ready to donate part of their salaries to Tabung Covid-19 Pahang.

Also, such cash handouts are inferior to the wage subsidies to employers for economic and administrative reasons. First, administratively it is definitely more efficient and easier to pay directly to the hundreds of thousands of firms or through their EPF account, than to the millions of households and individuals. 

Second, this scheme helps both the firms to stay afloat and also the employees to tide through hard times. The association of small-medium enterprises (SMEs) has said that without adequate assistance 50 percent could fold up. According to the Statistics Department, this sector accounts for 98 percent of total establishments, 65 percent of employment, and 38 percent of the GDP. 

In contrast, cash handout to individuals help individuals directly and firms only indirectly through the demand channel. However, if half of SMEs fold, supply of goods and services would be severely disrupted while demand increases. This would result in inflation, something we don’t want at this time.

Countries do not give a 100 percent wage subsidy which makes sense. Given the lockdown, the paramount objective is to make sure everyone has access to food and essentials. This is not a time to receive money to spend on discretionary items like new clothes and fancy stuff. Second, the wage subsidy given to companies for their employees can be calibrated on a sliding scale, higher percentage for those with lower income and lower percentage with those with higher income as part of the principle of pain sharing.

In short, this package should be better scrutinised and finetuned. It should be debated and passed in Parliament. It should not be used as a tool to win political support.


The writer is a former professor, banker and Penang city councillor.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

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