Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on August 28, 2018

KUALA LUMPUR: The gradual phaseout of government cash handouts such as Bantuan Rakyat 1Malaysia (BR1M) is a boon to the economy and the population in the long run, as well as a timely move in the right direction, economists say.

Since its implementation in 2012, the previous administration had spent a total of RM25.7 billion as BR1M handouts, a policy which the Pakatan Harapan government aims to improve to ensure equitable distribution.

The new government has promised to continue the BR1M, renamed Bantuan Sara Hidup (Cost of Living Aid), this year.

RHB Research Institute chief Asean economist Peck Boon Soon said removing cash handouts would not affect the vitality of the economy because of its marginal contribution to overall consumer spending but it would raise government coffers and improve its financials.

“Hopefully, the government would put the money to good use including training people, upgrading their skills so that they can move up the value chain. This will eventually reduce dependency on government handouts,” he told The Edge Financial Daily.

Peck was commenting on Prime Minister Tun Dr Mahathir Mohamad’s statement that BR1M, a legacy of the Barisan Nasional government, would be phased out to create an independent community, not reliant on handouts.

Dr Mahathir, who was quoted by a local news portal, faulted his predecessor Datuk Seri Najib Razak for “spoiling” the people who thought that the government would give money if they were not employed.

However, in a later event, Dr Mahathir said the government did not intend to end BR1M without making proper assessments on recipient needs.

According to the Parliament hansard on March 7, 2018, BR1M was introduced as a one-off cash assistance for 4.18 million low-income earners to help cope with rising cost of living in 2012.

That year, the government spent RM2.09 billion for RM500 disbursements to households earning less than RM3,000.

In 2013, it decided to continue with the welfare aid scheme, and raised its budget to RM2.9 billion to accommodate additional recipients, for a total of 6.8 million people. The government also decided to help single people earning less than RM2,000 by giving RM250 each.

The following year, the government introduced a new category of recipients — households earning RM3,000 to RM4,000, who would benefit RM450 allocation. It also raised the allocation for household income less than RM3,000 to RM650, and RM300 for single people.

Over the years, the cash handouts to these categories grew, and by 2017, the recipient list had expanded to 7.2 million along with a total payout sum of RM6.3 billion.

Socio-Economic Research Centre executive director Lee Heng Guie is certain the government would not totally remove BR1M, acknowledging Pakatan’s general election manifesto to help only those who really need aid.

“I feel the government would review the RM3,000 to RM4,000 household income group which receives the largest allocation. If BN had won, the government would have spent RM10.3 billion in total this year because it increased allocation [in its election manifesto]. This would have blown off the budget,” he added.

Lee said there should be a review of the social safety net and that all the ministries should look at the aid handed to people, audit and consolidate in order to streamline assistance.

“Different ministries give cash aid, so this must be audited. The cost of living relief should be reassessed. It should only be given if there is a catastrophe,” he added.

Apart from that, Lee said the government should look at stabilising the ringgit and increasing purchasing power without putting vulnerable groups at risk.

“We don’t want people to only look for cash aid and have a dole mentality,” he said, adding that as the country moves towards a high-income nation, it has to push for productivity, so raising salaries and upskilling are essential.

Echoing Lee’s call for higher minimum wage and skill training, AmBank Research chief economist Dr Anthony Dass lauded the government’s move to phase it out, saying it cannot go on forever as it becomes a disincentive to hard work.

“The government also reintroduced fuel subsidy for RON95, and is looking into removing tolls. So, I don’t think the gradual removal of BR1M would have a great impact on the economy,” he told The Edge Financial Daily.

He stressed that although raising minimum wage to RM1,500 was still under the median income of RM1,700 to RM1,800, it would help drive productivity, and support real income growth.

For the bottom 40% group, Dass said that 90 sen out of every ringgit is spent, so allocating several hundred ringgit to help them only leads to a short spike in consumer spending but would not improve their financial standing.

“By implementing higher wages, and targeted subsidies versus cash handouts, people’s living standard would improve, and this would lead to a multiplier effect in the economy in three to four years,” he added.

      Print
      Text Size
      Share