Gaji Madani: how the government can raise wages

 

Prime Minister Anwar Ibrahim said recently that there is no particular excuse for the private sector not to follow the government and raise wages to at least RM2,000.

There is some justification for this. Official data on compensation to employees shows that they get only around one-third of the value created from their work. Employers take almost two-thirds and so do have space to pay higher wages.

Private employers also have complete freedom to change their business model to accommodate higher wages. They can make economies through better management and even adjust working hours, for example by ensuring they pay the hourly minimum wage but releasing time for their employees to find extra sources of income.

This all takes time and requires the labour market to grow a spine, which is not going to happen quickly. Rather than wait, the government can encourage the private sector to consider salary increments immediately by changing the narrative from a minimum wage to a minimum take home pay or a minimum net income.

These are all forms of Universal Basic Income (UBI), Guaranteed Basic Income, or even Gaji Madani if you prefer, through which a minimum take home income is delivered by the employer, the employee and the government together.

Increasing by inflation since it was last set, the minimum wage would now be around RM1,600.

Recent media reports suggest that the human resources ministry might propose raising the minimum wage from RM1,500 to RM1,700, an increment of 13%. Of course this is too low because with statutory deduction for EPF, SOCSO and EIS the take home pay is below the poverty line.

Other benchmarks are important. The minimum wage for civil servants is now RM2,000, the minimum wage for the progressive wage pilot scheme is RM1,810 and Bank Negara estimated a living wage of RM2,700 in 2018 that would now be above RM3,000 taking inflation into account. EPF Belanjawanku estimates are also in line with this.

The problem is this – employees need higher incomes between RM2,000-3,000 which the employers say they cannot pay. This impasse can be solved through the tax system using a tax credit or reverse income tax.

It would work like this – if the Gaji Madani is set at RM2,000 and employers pay what they can above the minimum wage of RM1,700, the balance is paid as a tax credit to everyone earning below RM2,000.

Based on current data from the statistics department, this would help 1.96 million people who would receive monthly tax credits of between RM70-RM300 and would cost RM5.3 billion per year.

This can be paid from existing budgets on Sumbangan Tunai Rahmah (STR) and the forthcoming progressive wage model (PWM) to pay employees the RM70-RM300 per month directly through the Inland Revenue Board (LHDN) or the central database hub (Padu).

Alternatively, this can be paid by a simple e-payments tax of less than 0.2% which would mean that the minimum income would rise to RM2,000 and still be topped-up by STR and PWM through Padu.

This gets us closer to a RM2,500-RM3,000 take home income and would help employees and employers directly and efficiently without wastage, leakages and corruption.

This will mainly affect industries with low-paid workers such as cleaners, security guards, agricultural workers and retail and restaurants but will also start to help people in middle-wage categories as the minimum take home income from Gaji Madani approaches the median wage of RM2,900.

We need new approaches and the Gaji Madani proposal here raises take home incomes for employees to RM2,000, reduces the impact of the minimum wage and is almost neutral in tax and spending terms for the government. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.