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Budget 2022: Serious structural issues not addressed

We need to think of effective strategies for how we can claw back some of the wealth we are producing so we can build a better society

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Dashran Yohan of BFM interviews Dr Jeyakumar Devaraj.

BFM: Did Budget 2022 meet your expectations?

Jeyakumar Devaraj: I wasn’t particularly disappointed as this is about what one would expect given the fiscal constraints the government is facing and the neoliberal inclinations of our government.

But a couple of things that I thought were good are the prosperity tax that has been levied on corporate profits in excess of RM100m. I thought that is a clever idea. You know in Malaysia, we are scared that corporations will relocate to other countries if we raise corporate taxes, but here it is a one-off thing where we tax the profits in excess of RM100m 33%. The normal corporate tax is 24% of profits. The 33% is on the excess profits above RM100m and for this year only. This will not lead to capital flight. It is a clever way of getting a little extra tax revenue.

The other idea I thought is good is something we have been asking for – the government is going to contribute to Socso [Social Security Organisation] for the self-employed – the farmers, the fishermen and the micro-businesses. The only problem is that the government wants the self-employed to initiate the coverage by contributing 20%, and then the government will come in with 80% of the contribution. I think many in the target group will not make the effort and the coverage will be limited. But the idea is a good one as it will give a certain level of social protection for these vulnerable groups.

What exactly do you mean by “neoliberal” ideas that the government has? Some people may not understand the term.

Neoliberalism is the belief that for-profit businesses can provide all the goods and services that people need.

For example, at one point in the Budget, they talk about putting some money for housing. But one of the main schemes is to enable poorer families to access loans from banks so as to buy houses from private developers.

We have been asking that the provision of housing for the B20 [the bottom 20% of the population – with a household income of below RM3,000] should be taken out of the market. The B20 are not in a position to buy houses. They need “council housing” like the PPR [People’s Housing Project] schemes that they can rent at low rates. We can’t rely on the market to provide this sort of housing. The government has to step in.

But there is not even a whisper of this kind of approach in this Budget. This is the neoliberal approach premised on the belief that the market can solve everything.       

RM2.4bn has been allocated for welfare aid to the population. Is this enough?

No, it is not enough. Our estimate is that between 5% and 10% of Malaysian households are going to face problems securing steady incomes in the coming year. The economy is opening, but not all of this group will get steady jobs. They are going to need substantial support.

We are advocating a minimum income guarantee where the government supplements the incomes of these families monthly. We estimate that such a program will come to about RM10bn for a year.

Are you advocating a universal basic income (UBI) that has been talked about in many countries?

No, I am not. UBI would mean that we give every family cash every month. In Malaysia, we have 7.2 million families. If we were to give them RM1,000 each, that would come to RM7.2bn per month. Over a year, it would come to RM86bn – that is about 25% of our total budget for this year. It is not something we can afford right now.

We have been giving one-off payments of RM300 or RM500 to B40 [the bottom 40% of] families on and off. How useful is this to families who have lost their jobs?

It is definitely better than nothing. But it is not enough, and many of these families do not have EPF [retirement] savings to rely upon. So, they have trouble with their light and water bills, and the landlord might want to evict them. It is quite tough for them.

There are some things in the Budget that are not quite necessary. The government wants to give RM700 to each of the 1.3 million civil servants. The civil servants are not in as desperate straits as the restaurant workers who have been without proper jobs. This handout is an election ploy – to try and win support for PRU15 [the next general election].

We would much prefer that, given the fiscal constraints, we try and channel as much help as possible to the families that are in a bad financial situation.

What about the small businesses Dr Jeya, the micro ones, are they getting enough help?

The Budget talks about “Semarak Berniaga Keluarga” [thriving family businesses], and under this they specifically say that RM1.8bn will be allocated as interest-free loans to micro businesses.

That is a good idea if it can reach the target population. Sometimes this sort of allocation does not get to the intended target; other groups take it.

The micro businesses need two things:

  • They need some capital to restart their businesses. Their stalls might have been damaged and some equipment lost or spoilt. They need some capital to restart
  • The second thing they need are customers for their products. As the economy opens up, more people will have an income and they will buy from these small businesses       

Another issue is unemployment. The problem was there before the pandemic, with graduates not able to get jobs suitable for them. But now it is worse. Is there enough in the Budget for this problem?

The government is allocating some funds to support firms that employ unemployed people, especially youth. That is a good start.

But as you said, the problem existed even before the pandemic. And there are systemic issues at play here. The MNCs [multinational corporations] helming the global chains play off suppliers in the developing world to keep the prices of their products low. So local businessmen have to keep costs down if they want to get orders and make a profit. So, if we try to raise wages too high in Malaysia, we run the risk of losing investments and jobs.

The other structural issue is that we now need less and less labour hours to produce the same volume of goods and services because of improvements in technology, automation and advances in IT. So, either we produce even more goods – but that is bad for the environment – or we share out the available work by reducing the hours of work worked per week.

But if we give fewer hours of work to a person, then we need to raise the hourly wage rate – otherwise that person cannot meet the needs of his or her family. But raising the hourly wage rate will raise costs and make us less competitive.

These are the underlying structural issues we need to discuss. They do not only affect us in Malaysia but are a problem all over the world.  

Do you think it is feasible for the government to create 600,000 jobs in the coming year? Or is it just to create a good impression?

It might be possible. For our economy has shrunk over the past one-and-a-half years. As it re-expands towards its previous size, many jobs will be regenerated. So, we might get the 600,000 new jobs comparing to the current baseline.

More than RM11bn has been allocated to various communities under the government empowerment agenda. Is this fair? Are the issues of the Indian and Orang Asli communities being addressed?

This is a contentious issue. The main focus of the empowerment agenda is to increase bumiputra participation in the SME [small and medium enterprises] sector. I think we need to have an honest and mature discussion of this issue.

We have to take into account the fact that at independence, the bumiputra communities were under-represented in the modern sectors of the economy.

For example, in the late 1950s, fewer than 5% of the doctors in the country were Malays. Similarly, with lawyers, engineers and other professionals.

It was not that the Malays did not have the capacity, but the British wanted the Malays to be rural and under the feudal control of the sultans, and relied on immigrant labour to develop and run the colonial economy.

As a result, when we gained independence Malay participation in the modern parts of the economy was limited. Something had to be done about this. There was a need for affirmative action to enable the Malay community to participate in the modern sectors of the economy.

It could be that some steps were too drastic and impacted badly on the non-Malays, but we need to accept that there was a need to correct the racial imbalance.

We also need to see whether the RM11bn being channelled to develop bumiputra capacity in the SME sector is actually building that capacity – or is much of the funds going as rentier income to well-positioned individuals?

Funds are short. There are fiscal constraints: RM11bn spent to develop bumiputra businesses is RM11bn less for programmes that strengthen the social safety net, such as more comprehensive medical care. So, we as a nation must make sure that the RM11bn is spent properly.

At the same time, other disparities such as the intake into the civil service also should be fair. Non-bumiputras and East Malaysians are under-represented in civil service intakes at all levels. This too has to be looked into.

These issues have to be addressed on the basis of fairness to all so that we can build a more harmonious society. I think what Tun Razak [Hussein] said about eradicating ethnic identification with economic function still is relevant today.     

The Ministry of Health is getting an allocation of RM32.4bn ringgit. Is this enough?

No, it is not enough. We are still only at about 2% of GDP [gross domestic product]. We need to increase the health budget to about 4% of GDP.

Even before Covid, our public hospitals and clinics were packed and overloaded, with long waiting times for surgery. We need an extra general hospital in Ipoh, in Klang, in Seremban, in fact, in most of our bigger towns and cities. Our existing hospitals are overcrowded. We need more staff.

Our healthcare personnel have done very well in this pandemic despite the fact that our public health system has been underfunded for the past two decades. We need to put more money into healthcare.

Any concluding thoughts about the Budget 2022?

Yes. We need to have a deeper discussion about how we can increase government revenue. Over the past 30 years, Malaysian government revenue has decreased from 30% of the GDP to its current 14% or so.

This has to do with the liberalised global economy. Ever since the collapse of the Soviet Union, the right wing has become more dominant and, with the World Trade Organisation and the free trade agreements, they have refashioned the world economy such that it is even more biased towards large corporations.

As a result, the hands of governments are tied – their revenue has reduced as a percentage of GDP. Governments are worried if they increase corporate tax, then the large corporations will shift their headquarters to Singapore or Bangkok and use various tricks to transfer their Malaysian profits to these headquarters.

We are scared to introduce a wealth tax or a capital gains tax for the same reason.

We are now engaged in a race to the bottom with other Asean countries in our competition to attract FDI [foreign direct investments]. Our corporate tax was 40% of profits in the 1980s. But it has been brought down in stages to 24% currently. But Thailand is at 19% and Singapore 18% of corporate profits.

These are issues we have to discuss. For otherwise, we can grow the GDP but we do not have the policy space to use part of the wealth created to improve the living conditions of our citizens. Of course, changes cannot come overnight and cannot succeed if done only in one country. But something needs to be done.

Look at our current situation. Federal government projected revenue for 2022 is about RM234bn. Our expenditure is estimated to be about RM332bn. We have a deficit of about RM98bn – a sum we have to raise by floating government securities (bonds).

In addition, we have to raise another approximately RM80bn to settle the bonds which are maturing in 2022. We are currently paying an interest rate of about 4.5% on our bonds.

So obviously there are serious fiscal constraints to building a stronger social safety net for our population. We need to think of effective strategies for how we can claw back some of the wealth we are producing so we can build a better society.

This is a lightly edited, abridged transcript of a revent BFM interview.

The views expressed in Aliran's media statements and the NGO statements we have endorsed reflect Aliran's official stand. Views and opinions expressed in other pieces published here do not necessarily reflect Aliran's official position.

AGENDA RAKYAT - Lima perkara utama
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Dr Jeyakumar Devaraj, a long-time Aliran member and contributor, served as Member of Parliament for Sungai Siput from 2008 to 2018. A respiratory physician who was awarded a gold medal for community service, he is also a secretariat member of the Coalition Against Health Care Privatisation and chairperson of the Socialist Party of Malaysia.
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