Productivity, not handouts, essential to curb rising cost

 

From Jamil A Ghani

The rising cost of living in Malaysia, from surging food prices to increased housing costs, continues to put a strain on household budgets, leaving many struggling to make ends meet.

In response, the government has introduced a dual strategy of immediate relief and long-term reforms to foster financial security.

With these measures, the government hopes to ease financial burdens and promote economic mobility. However, their success will depend on a results-oriented approach.

Immediate relief for vulnerable groups

To help those most in need, Putrajaya has rolled out aid in the form of cash and basic necessities such as the Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA).

With an unprecedented allocation of RM13 billion, this will give cash assistance to nine million Malaysians, equivalent to 60% of the adult population.

Under SARA, a component of the STR, approximately 4.1 million vulnerable households will receive RM100 a month each to pay for essential items.

However, history and economics have shown that handouts alone do not offer long-term solutions to challenges such as the rising cost of living.

Handouts add liquidity in the economy and enhance purchasing power but there is no corresponding increase in productivity.

This leads businesses to raise prices, thus contributing to higher inflation.

The now discontinued Bantuan Rakyat 1Malaysia (BR1M) programme offers some valuable lessons.

As a short-term cash assistance programme with no structural reform plan or productivity-enhancing measures, there was limited long-term impact.

To yield lasting benefits, priority must be given to policies that tie income growth to productivity.

This can be done by enhancing in-demand skills in the workforce, linking wage increases to improved job performance and strengthening key sectors such as agriculture and housing to enhance supply capacity while easing price pressures.

Major boost needed

Learning in-demand skills is key to building long-term resilience.

To that end, the government has allocated RM7.5 billion in technical and vocational education and training (TVET) programmes, which in 2023 boasted a 96.5% employability rate — compared with 88.3% among higher education graduates.

This also opens the way to higher-paying jobs in emerging sectors such as AI, green technology and advanced manufacturing.

Initiatives such as the Progressive Wage Policy, with a RM200 million allocation, give businesses the incentive to raise wages above RM5,000 a month for those who perform well and possess the right skills.

This ensures wage growth supports sustainable economic development without driving up inflation.

The increase in minimum wages to RM1,700 which takes effect in February this year will offer some relief to low-income workers. SMEs have until August to comply.

To boost employment, RM200 million has been extended to Khazanah for its effort to fill 11,000 semiconductor jobs under its K-Youth Development Programme.

In 2023, it secured jobs for 83% of 8,381 participants.

However, scaling up the programme to reach tens of thousands of underserved rural areas remain crucial.

Partnerships with local schools and community organisations could bridge the accessibility gap.

Prioritising sustainability and digitalisation

Central to the effort to strengthen the workforce is a focus on sustainability and digitalisation.

To rope in private sector participation, government guarantees and rebates on interest rates are offered to companies that adopt green technology under the RM1 billion Green Technology Financing Scheme.

The savings from reduced borrowing costs and operational expenditure is expected to be passed on to consumers, thereby keeping prices down while boosting productivity.

It also creates jobs in designing, installation and maintenance of renewable energy systems for locals.

The US$16.9 billion investment from tech giants Google, AWS and Microsoft will position Malaysia as a regional digital hub.

For instance, Google’s US$2 billion investment in a data centre and AI is expected to create 26,500 jobs by 2030.

Just like the US, Malaysia could adopt policies that tie tax incentives for data centre investments to quota on local hires and fair compensation.

Ensuring food security and affordable housing

Given how critical food and housing are, nearly RM4 billion has been set aside to meet these basic needs.

A sum of RM300 million will go into funding federal-state collaboration to enhance production of staples like rice and fish.

Combined with RM2.78 billion in subsidies for farmers and fishermen, these measures should stabilise local food prices while reducing reliance on imports.

However, stronger subsidy targeting and oversight are essential to prevent the resale of subsidised fertilisers and diversion of cheap diesel to illicit markets.

Putrajaya has allocated RM900 million for 48 Program Residensi Rakyat initiatives and 14 Rumah Mesra Rakyat projects to address housing shortages.

Yet, challenges like poor unit allocation, bureaucratic delays and inadequate maintenance persist. Improved governance is needed to address such issues and to meet growing demand.

Conclusion

A comprehensive plan that offers both short-term relief and long-term solutions is now in place.

Structural reforms ensure that the emphasis is on sustainable solutions over temporary fixes.

However, Malaysia also has a track record of introducing ambitious policies only to be held back by implementation gaps such as inconsistent oversight, weak coordination and ineffective communication.

Bridging the gap between planning and execution will enable Putrajaya to overcome current obstacles and build a more resilient, prosperous economy for the future. - FMT

Jamil A Ghani is a PhD candidate at the S Rajaratnam School of International Studies, Nanyang Technological University, Singapore and an FMT reader.

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