Written by Wan Ya Shin, Research Manager of IDEAS
Published in Free Malaysia Today on 27th of March 2020
During this COVID-19 pandemic, many countries have lockdowns. In Malaysia, the Movement Control Order (MCO) was announced to be extended by another two weeks.
The government has rolled out a number of stimulus packages, but it is still lacking in providing social protection to the most vulnerable segments in society. The Malaysia Employers Federation (MEF), was asking for the government to reduce their contributions to the Employees Provident Fund (EPF) to 5% from a percentage of 12%-13% and to temporarily exempt them from several taxes, according to an article by Free Malaysia Today. MEF has said that these measures would prevent retrenchment and closure of businesses.
In relation to this issue, I was reflecting on what does burden sharing means in this context? Burden sharing is a term used in the context of refugees and environment to have shared responsibilities among member states to protect refugees in the foremost and environment in the latter. There are claims that employees should share the burden of the impact of COVID-19 on the economy with the government and employers.
But should it be equitable or equal? Equitable means it would be shared according to the capacity of each party. The stronger ones to shoulder more burden than the weaker ones. Equal means that all share the same amount of the burden.
What is the distribution of burden so far? The bulk of the burden seems to be on workers. Stimulus package are activating our national social insurance such as Employment Insurance Scheme and Employee Provident Fund to provide more cash flow in the hands of workers. Besides that, businesses which are struggling would retrench employees, reduce pay, reduce working hours or ask employees to go on unpaid leave. Then, there is a group of workers in the informal sector who have limited social protection and would need to fend for themselves.
Social protection that is provided by the government is limited and mostly relies on the social insurance which is contributed by the workers.
Businesses are doing what they could to survive this MCO and the economic slowdown. However, not all businesses are in the same position, some are more financially secured while some are more vulnerable. Small and medium enterprises (SMEs) are the most vulnerable in this time of crisis. Moreover, according to Department of Statistics, the contribution of SMEs to total employment is 66% in 2017. Therefore, SMEs are key in protecting jobs. SMEs are also important in ensuring the supply chain of productions.
We need to prioritize our fiscal spending and focus on the most vulnerable segment of society and provide liquidity to the SMEs. Therefore, we could not afford to provide a blanket corporate and income tax reduction as that would significantly reduce tax revenue to mobilize assistance for the most vulnerable in the society. Is there fiscal space to have a blanket tax reduction?
Low-income workers in the formal and informal sectors are the most vulnerable in this economic shock. What social safety net or private savings do they have to weather through this crisis? They live on day-to-day income.
Employment retention strategy is needed to help these workers as well as their employers to retain them during these times. Cash assistance should be expanded to include those low-income workers who have to take a pay cut or reduce work hours. This would support the employees as well as their employers in this time of crisis. Social safety nets must be expanded to support vulnerable self-employed and informal sector workers who are not covered by the social insurance schemes.
We should have equitable burden sharing during these difficult times. Government should provide expanded social protection at these times. While employers should do their best to take care of their employees. We cannot keep taking out funds from the limited social insurance that most workers rely on for their retirement. We need to share this burden more equitably.