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Economists look at how to finance higher welfare aid

KUALA LUMPUR, 25 August 2020 – Economists are questioning how the government will finance the recent proposal to raise the monthly welfare aid from the current maximum of RM300 to RM1,000.

There are about 500,000 recipients of the scheme now.

Goh Lim Thye, a senior economics lecturer at Universiti Malaya, said higher welfare aid for the B40 (low-income) group was a welcome idea, but policymakers will have to ensure that the government has sufficient funds to execute the plan.

“The increase will ease the burden of B40 households greatly, but with Malaysia’s debt load currently at 59% of its GDP (gross domestic product) – among the highest in Southeast Asia according to a market research report – the government may not have sufficient funds.

“In short, the national debt is expected to increase further,” he added.

Higher taxes, or new government bonds

Revenue could be raised through additional taxes, but this would burden Malaysians, Goh said. Another option could be the issuance of government bonds.

Yeah Kim Leng, a professor of economics at Sunway University, said the newly revised poverty line from RM980 to RM2,208 means that more households have been classified as poor – both of which justifies the government’s direct support for the group.

He suggested that the government reduce expenditure in areas such as military spending in order to finance Prime Minister Muhyiddin Yasin’s proposal.

Yeah said Putrajaya has three other options to pay for the prime minister’s suggestion.

“It could raise taxes or sell assets. The government can also increase consumer and investor confidence which would then lead to an economic boom – but that is easier said than done,” he said.

“We are in an economic downturn now with lower revenue and higher (government) spending, so we don’t have much choice other than to raise our budget deficit and finance Muhyiddin’s proposal through borrowing.

Still room to cut government expenditure

“We do have slight fiscal flexibility to increase deficit financing by increasing borrowing, so we should be able to finance it for 2021,” he said, but the government would have to ensure it stays within its newly announced statutory debt limit.

The Dewan Rakyat last week approved the government’s plan to raise its debt ceiling from 55% to 60% of GDP as part of temporary measures to recover from the economic fallout of the Covid-19 pandemic.

Universiti Malaya professor Nazari Ismail said there is still room to reduce government expenditure, including reducing the number of ministers and deputy ministers.

“If the government is reluctant to do that, then it will have to look really closely at other government expenditures and reduce those that are unnecessary,” he said. “A lot of money” could be saved if there was no wastage and leakage of government expenditure.

Adli Amirullah, a senior economist at the Institute for Democracy and Economic Affairs, said that a cash transfer directed to specific target groups such as the B40 could be misused as a political tool.

“To prevent this, the implementation of cash transfers need to be transparent and accountable,” he said. “The B40 recipients should strictly be from all races, religions and regions without any bias or unequal distribution.”

First published in Free Malaysia Today, 1 September 2020

2020-09-01T14:50:39+08:00 1st September 2020|News|Comments Off on Economists look at how to finance higher welfare aid