Still high cost of living fuels disgruntlement

This article first appeared in The Edge Malaysia Weekly, on May 6, 2019 - May 12, 2019.

Other stories in the Malaysia Baru: One Year On Special Pullout

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As Pakatan Harapan swept to an unexpected victory in the 14th general election (GE14), it did so on the back of many promises that fell into two categories.

One was to clean up corruption, particularly relating to the 1Malaysia Development Bhd (1MDB) scandal, and to restore institutional governance frameworks eroded over 61 years of Barisan Nasional rule.

The other comprises pledges that it said would relieve cost of living pressures on Malaysians, which were burning holes in their collective pockets.

One year on, the PH government’s performance is one of two halves: while it has met expectations on the governance and corruption front, it has fallen short on the promises related to the economy that it proclaimed would reduce the cost of living within 100 days.

And this shortfall is now fuelling resentment and dissatisfaction against the fledgling federal government, a point acknowledged by Prime Minister Tun Dr Mahathir Mohamad in January.

The cost of living in particular is seen as a pressure point that is now persuading the PH government to emphasise growth moving forward.

“Public dissatisfaction remains elevated over a still high cost of living, inadequate job opportunities and low income growth ... the apparent lack of economic progress (is) felt on the ground, especially by low income and rural households,” says Dr Yeah Kim Leng of the Sunway University Business School.

It is worth noting that the removal of the much maligned Goods and Services Tax and subsequent implementation of the Sales and Services Tax did little to alleviate rising costs.

Then there is the broken promise to allow lower-income earners to postpone repayment of their National Higher Education Fund Corporation (PTPTN) loans; abolish toll charges across all highways; and to fix petrol prices at RM1.50 per litre.

Other outstanding promises include a pledge to create one million job opportunities. To be fair, some of these promises were declared as ongoing by PH leaders.

More recently, last month, Human Resources Minister M Kulasegaran said the one million job creation plan is still achievable within the government’s five-year mandate.

While the first 12 months of PH rule is seen as a period of reset and clean-up, how it goes about managing economic growth to ensure the benefits are felt by the people will be key.

“In our view, the government’s approach to help relieve the [effects of the] rising cost of living on low and middle-income households must be two-pronged: income-based and cost-based,” says Lee Heng Guie, executive director of the Socio-Economic Research Centre (SERC).

Lee says the cost-based approach should involve reforms that remove existing industrial policies and regulations that only serve to raise prices of basic goods and services, that hurt the lower-income groups.

The income-based approach should aim to directly raise the incomes of the vulnerable groups, for example, via cash transfers, tax breaks and minimum wage increases, he adds.

“We must improve incentives, implement effective socio-economic development programmes, up-skilling and jobs enhancement, broaden economic growth and job opportunities so low-income households can earn more,” says Lee.

It is not to say that the PH government has not tried. For example, it has maintained some of the previous government’s initiatives, such as the direct cash aid programme called Bantuan Rakyat 1Malaysia (BR1M), which has been renamed Bantuan Sara Hidup (BSH).

Among others, it also drove reductions in broadband costs by a quarter in 2018, while also introducing monthly travel plans via public transport in the Klang Valley that saved money for urban commuters.

From Jan 1, the government raised the minimum wage nationwide to RM1,100 from RM1,000 in Peninsular Malaysia and RM920 in Sabah and Sarawak. Note that the initial increase was to RM1,050, but public outcry over the quantum saw it raised further to RM1,100.

Another notable initiative is the rollout of MySalam, an insurance scheme tailored for B40 households, in January. The scheme is expected to benefit 3.69 million Malaysians aged 18 to 55, whose households earn RM3,000 a month or less, according to the government.

MySalam is funded with a RM2 billion contribution by insurer Great Eastern in exchange for a permanent exemption from a government requirement that 30% of its shares are owned by Malaysians.

Another notable drive to tackle the cost of living is the government’s scrutiny of monopolies, especially in four key sectors — rice imports, medicine, licence renewal and vehicle inspection — spearheaded by the Ministry of Domestic Trade and Consumer Affairs.

“This (scrutiny on monopolies) is certainly a positive sign, but dramatic improvements will take time,” comments SERC’s Lee.

Ultimately, tackling cost of living woes will take the government back to the need to address structural economic issues, including the removal of protectionist tariffs and high market barriers to entry that raise prices in many industries to the detriment of consumers.

“In tackling the issues of cost of living, we must create a level playing field of competition across the supply chain as well as distribution channels of goods and services that exert influences on final prices,” concludes Lee.