More exemptions in Budget 2016 not a long-term answer for the poor

Various measures to help the Bottom 40% were announced by Prime Minister Datuk Seri Najib Razak in yesterday's Budget 2016 presentation. – The Malaysian Insider graphic by Daniel Abd Halim, October 24, 2015.Measures aimed at low income Malaysians in the 2016 Budget got the thumbs up from experts and analysts, but they also questioned the long-term effectiveness of these moves in boosting disposable incomes.

Some were also doubtful that moves such as wider good and services tax (GST) exemptions would help vulnerable households deal with rising inflation, which is being caused by the consumption tax in the first place.

There is also a concern that while some groups were targeted, such as rubber tappers and farmers, others wee being overlooked, like the urban poor who live in high rise flats, academician Datuk Dr Denison Jayasooria (pic, left) said.

Most importantly, said Jayasooria, was the question of implementation and ensuring that these measures actually get to the people they are meant to help.

“While there is an emphasis on inclusive development, much of the categories are still ethnically focused.

"Based on the ethnic categories and allocations there seems to be a great disparity in allocations,” said Jayasooria of Universiti Kebangsaan Malaysia (UKM).

More exemptions and aid

The budget is the first in a series of five meant to achieve the 11th Malaysia Plan (11MP), a five-year blueprint that is supposed to turn Malaysia into an advanced, high-income economy.

One of its key thrusts is to help the bottom 40% of Malaysia households or the “B40”. The term was coined in the 11MP and refers to 2.7 million households who make an average of RM2,500 a month.

Budget 2016’s measures for the B40 are part of 11MP’s goal to double their average incomes to RM5,000 by 2020.

Some of the announcements that would directly impact the B40 include a RM100 increase in the minimum private sector wage from RM900 to RM1,000 a month and a minimum wage or RM1,200 a month for civil servants.

The budget will also increase cash handouts under its 1Malaysia People’s Aid scheme (BR1M), impacting at least 4.7 million households who earn below RM4,000 a month and 2.7 million working individuals with incomes below RM2,000 a month.

Money was also poured into micro-credit schemes under Tekun and Amanah Ikhtiar Malaysia (AIM) as well as programmes specifically for small Bumiputera, Indian and Chinese entrepreneurs.

There was also good news for the middle income households in the form of income tax relief. Higher tax exemptions were announced for those with children below 18, those who paid for their parents’ medical bills and those with children studying in universities.

Sectoral discrimination

“The entrepreneurship programmes in Yayasan Tekun, AIM and youth ministry is most critical. The focus on Bumiputera and Indians is also good,” said Jayasooria, who has studied and worked on anti-poverty programmes.

The raise in minimum wage was also good said Jayasooria, but felt that it should be closer to RM1,500.

This was echoed by Institut Rakyat’s Yin Shao Loong, who questioned why Putrajaya did not follow the Malaysian Trades Union Congress (MTUC)’s recommendation of RM1,200 for private sector workers.

“MTUC calculates this number based on what would be necessary to match the cost of a basket of goods, so it’s strange why the government did not follow this recommendation and how did they come up with their rate,” said Yin, who is the think tank’s executive director.

Putrajaya was also being inconsistent by setting the private sector rate at RM200 lower than that in the civil service. The public sector would then suck workers from the private sector, said Yin.

Since Putrajaya wants private spending to drive economic growth and there is a limit to how much civil servants it can take, it would make more sense to streamline wages in both sectors.

“Different minimum wage rates between urban and rural areas are understandable but there should not be one between different sectors,” he said.

Exemptions good, zero rate better

Putrajaya also announced more zero-rated goods such as all controlled medicines and a handful of foods such as infant formula and brown sugar, which consumer rights advocate Datuk Paul Selvaraj (pic, right) said would lead to substantial savings.

“Low income consumers would also benefit from the rebates given for mobile pre-paid cards,” said Selvaraj who is secretary-general of the Federation of Malaysian Consumers Association (Fomca).

The extra income tax exemptions, said Selavaraj, would also increase disposable incomes and fulfil Putrajaya’s promise that was made when GST was announced.

But Yin argued that more GST exemptions were merely tweaks to a system that was already causing much pain among consumers and businesses in a challenging economy.

There is data, he said, which showed that ever since GST was started in April, the inflation rate as shown in the Consumer Price Index (CPI), among those earning RM3,000 and below, was higher than the average national inflation rate.

“So there is some evidence that the lower income is not reaping the benefits from GST exemptions and price controls compared to middle class and upper class consumers.”

Despite GST exemptions, the whole industrial and retail supply chain still has to deal with higher costs due to GST and the weaker ringgit, said Yin.

Instead of patch work exemptions, an across-the-board temporary moratorium on GST would do more to help people and businesses deal with inflation. Being free of an extra tax would then boost private spending and drive economic growth, said Yin.

- TMI