Measure incentives by what rakyat get back

 Tax breaks and other stimulus are extended to investors so the people can later benefit from access to jobs, opportunities to acquire new skills, and greater business prospects.

From Rozannah Jeffrey

In a recent podcast, former economy minister Rafizi Ramli asked a pointed question that many Malaysians will relate to.

He wanted to know if public value is being handed over to companies that already have money when the government offers grants, tax breaks or other incentives to large investors.

In a nutshell, “public value” is the worth or value created by governments for citizens through services, laws, regulations and actions that promote the common good, trust, and legitimacy.

It was a term coined by Mark Moore, professor at the Hauser Centre for Non-Profit Organisations at the John F Kennedy School of Government at Harvard.

That is a fair question. If taxpayers are asked to give today, they deserve to know what they will get in return tomorrow.

But Rafizi seemed to have missed the woods for the trees.

The real question, as Malaysian Investment Development Authority (Mida) chairman Tengku Zafrul Aziz pointed out, is whether the incentives provide an appropriate return to Malaysia.

Incentives are not handouts to investors and should never be seen as such.

They are tied to outcomes, Tengku Zafrul stressed in a video on his official Facebook page recently.

He also emphasised the need to avoid narrowing the discussion to incentives equal to paying companies to come to Malaysia.

Incentives may include a tax break for a foreign investor, a duty exemption for a carmaker, or a special deal for those who already have capital.

Many Malaysians, quite ignorantly, view these as assistance for big companies, but this is understandable.

We are always worried about prices, wages, and job security, so every ringgit in tax breaks must be justifiable.

But we must be clear about the fact that an incentive is not a gift. It is meant to be a bargaining tool.

It is given in anticipation of receiving something bigger in return, such as better jobs, higher skills, local supply contracts, exports, technology transfer, even employment for the next generation.

The test of an incentive is whether or not it helps to build an ecosystem. Take the case of Intel. The full story is not just about the factory. It is about the worker who starts as a production operator, spends 20 years learning global standards, becomes manager, and later helps build a local company or supplier base.

That is how an investment stops being just a foreign company’s project and becomes a Malaysian capability.

Intel Malaysia was established in Penang in 1972. From just 100 employees initially, its Penang operations is now Intel’s largest and most diverse site outside the United States. That is the kind of spillover Malaysia wants from major investments.

People in the silent generation — those born between 1928 and 1946 — were unlikely to have worked inside a semiconductor plant.

But their child, a baby boomer, could have been a technician in the Kulim industrial park or their nephew an engineer in the Bayan Lepas Free Trade Zone.

Their neighbour’s small company might have been the supplier of tools, or logistics, packaging or maintenance services to a multinational.

That is the point of incentives. The tax break is not a benefit to the investor; the benefit is what comes back to us after the tax break has been given.

Malaysia’s New Incentive Framework is based on the same principle. As Tengku Zafrul, who previously served as investment, trade and industry minister, has pointed out, it ties incentives to outcomes such as high-value jobs, domestic supply-chain links, industrial clusters, inclusivity and sustainability.

That is the right principle, but it must be matched with public accountability. Malaysians should be able to see a clear scoreboard.

How many Malaysians are hired? How many are trained? How many local companies have become suppliers? Have wages improved? Is there a transfer of technology? Does the company export from Malaysia, or merely sells to Malaysians?

If these conditions are met, it means we are already investing in ordinary Malaysians. Otherwise, the incentive is just a giveaway.

Our policy on electric vehicles (EVs) goes down a similar path. Incentives that had been given earlier helped to bring in more EVs, giving buyers a wider choice.

But it cannot always be about importing cars. If we want to build an EV industry, we must push carmakers to invest in local production.

That will give rise to a local network of parts suppliers, servicing workshops, and charging infrastructure, while upskilling our people.

Otherwise, our country becomes just a market for imported vehicles rather than a participant in the industry.

That shift must be handled carefully. If Malaysians only see higher prices and fewer choices, the policy will be hard to defend.

But if they see jobs, chargers, local suppliers and better after-sales support, the incentive becomes easier to justify. The same rule applies — public support must produce public value.

This is why the debate should not be reduced to whether incentives are good or bad.

Ordinary Malaysians are not against foreign investment. They are against deals that do not clearly benefit them.

Malaysia should not just offer giveaways to woo investors; it should reward companies that build capacity inside the country.

This is the condition for the incentives that investors receive, and the dividend to the rakyat is what Malaysia must receive. - FMT

Rozannah Jeffrey is an FMT reader.

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