Six creative ways to raise funds for social protection

The Socialist Party of Malaysia (PSM) held an interesting forum titled “Can we strengthen the social safety net given our trillion ringgit debt?” in the Kuala Lumpur and Selangor Chinese Assembly Hall on 29 September.

Dr Jeyakumar Devaraj, the PSM national chairperson, explained that political parties, NGOs and business groups are putting forward their proposals and requests for funds for particular programmes.

He listed some of the programmes that PSM had asked for in its “Rakyat minta lima” (The people want five Issues to be handled) campaign, launched late last year.

The programmes requested and the estimated cost per year:

• RM12bn – Universal pension for those aged above 65
• RM8bn – Increase in budget for Ministry of Health
• RM8bn – 100,000 People’s Housing Project houses per year
• RM5bn – Bus-based public transport throughout the country
• RM5bn – Rehabilitation and upgrading of our forests, rivers and domestic waste disposal systems
• RM10bn – Free tertiary education till the first degree

He pointed out that the estimated total cost of these six programmes comes up to RM48bn.

He then explained that the estimated expenditure in the 2022 Budget was RM332bn compared to an estimated income of RM234bn, resulting in a RM98bn shortfall, which has to be covered by floating bonds for that amount.

He also pointed out that federal government debt in December 2021 stood at RM995bn, and that RM110bn of that debt would mature in 2022 and would need to be paid back (by floating new bonds for that amount).

Given that our debt servicing bill is about RM43bn for 2022 (even bigger than the Ministry of Health’s budget of RM32bn!), it is not surprising that the government is reluctant to commit to new social protection programmes.

Jeyakumar said that it is therefore important that civil society turns its mind to how the various programmes and projects that PSM was asking for could be funded. This was the main focus of the 29 September forum.

1. Reduce duplication

Segambut MP Hannah Yeoh, the first speaker, brought up two main ideas. She said that there are 110 different welfare programs run by various ministries. But only 10% of these are run by the Ministry of Women, Family and Community Development. There is, therefore, a lot of duplication and wastage.

She proposed that there should be a national database of all recipients of welfare programmes so that aid could be targeted more efficiently.

2. Reduce wastage

The second point Hannah brought up was the fact that government expenditure is often jacked up significantly by the way contracts are subcontracted to other vendors. This too leads to a lot of wastage.

Of the total estimated expenditure of RM332bn for 2022, RM30.4bn was budgeted for purchase of goods and services, while RM77.6bn was for development expenditure – a total of RM108bn.

According to Hussamuddin Yaacub of Rasuah Busters about 30% of these two categories of expenditure is wasted due to excessive mark-ups. This would amount to about RM32bn for 2022 – more than enough to fund the old age pension scheme, multiple environmental greening programmes and free education up to tertiary level.

3. Raise corporate tax rates

Jeyakumar, the second speaker, talked about the need to address the race to the bottom in corporate taxes that the Asean nations are currently engaged in.

He pointed out that corporate tax in Malaysia was 40% of profits in the 1980s. However, the corporate tax rate has gone down to 24% of profits because Malaysia is in a competition with its Asean neighbours to attract investments, both domestic and foreign. Thailand’s corporate tax rate is 20% of profits while Singapore’s is at 17%.

Jeyakumar said that if Malaysia unilaterally raised its corporate tax to 30% it is possible that new investments might taper off and Malaysia would fail to create sufficient jobs for young people entering the job market.

The solution, therefore, has to be to raise corporate taxes in tandem with other Asean countries. Jeyakumar suggested that Malaysia should start talking to the other Asean countries to adopt a scheme to each raise their corporate tax rates in stages over the next 10 years so that all attain a corporate tax rate of 30% of profits. In other words, Thailand would have to go up by 1% per year, while Malaysia would increase its corporate tax rate by 0.6% every year.

The increase in tax collections would not only enable Asean countries to strengthen social protection for their populations but would also increase aggregate demand, thus spawning new opportunities for businesses. It would be a win-win situation for all the countries, but it would take some time to negotiate such an approach.

4. Require permits for new cars

The second idea that Jeyakumar put forward was that the government should require people to buy a permit in order to purchase a new car. (Singapore at present auctions these permits!) The price of the permit should be proportional to the engine size of the car.

At present, Malaysians buy around 500,000 new cars every year. At an average price of RM30,000 per permit, this permit scheme would mean an income of RM15bn per year.

This sum would be more than enough to embark on an ambitious programme to provide an electric bus-based public transport system across the country as well as for investments in renewable energy to supply the electricity required for this fleet of buses.

Such a programme would have numerous ‘externalities’ – a lessening of congestion on our roads, a reduction of endless road construction, a reduction in greenhouse emissions and a reduction in the need to buy a car. It would also lead to the development of two new industries – the manufacture of electric buses and the development of renewable energy facilities.

5. Monetise debt

The third idea Jeyakumar put forward was “debt monetisation”. This involves the sale of government bonds to Bank Negara at very low interest rates (Perhaps 0.1% compared to the 4.3% we are now paying to private investors buying government bonds).
This would provide the government with extra funds to strengthen the social security net without increasing the debt servicing burden.

Jeyakumar cautioned that this modality of raising funds must be used judiciously (perhaps capped at RM 50bn initially) as it might put some pressure on the ringgit – as for every extra ringgit the Malaysian pubic spends, imports go up by 30 sen.

An increase in Malaysian ringgit in the international financial markets would tend to depress the exchange rate of the ringgit. It might also have the effect of increasing the cost of borrowings, as investors in Malaysian government bonds would factor in the possibility that the ringgit might depreciate and the value of their investments along with it. Jeyakumar suggested that this modality should be studied and used cautiously to increase funds for social protection.

6. Target subsidies for the poor

Dr Muhammad Khalid, researcher and author of The Colour of Inequality, was the final speaker. He explained that the current system of un-targeted subsidies benefits the richest 20% of the Malaysian population much more than the bottom 40%.
The petrol subsidy is estimated to total RM30bn for 2022. Dr Muhammad pointed out that the richest 20% tend to travel more and use bigger cars. So this subsidy benefits the richest disproportionately more than poorer households.

He suggested targeting subsidies using the databases that the government currently has, so that the subsidies go only to the poorer families. For example, the poorest 60% of families could be given cash transfers of RM200 per month to defray their petrol costs, but the pump price of petrol should be allowed to reflect the market price – currently a bit above RM4 per litre.

This measure would see the government paying out RM12bn as petrol subsidy to the poorest 60% of families, which is significantly less than the RM30bn that will be expended this year – savings of RM18bn.

Muhammad Khalid also said that taxes should not be cut. But he also stressed that the poorer sectors of society should not be taxed. In other words, the goods and services tax (GST) should not be re-introduced, as it is a regressive tax. The poorest families pay a higher rate of GST as they spend all their income, whereas the richest 20% save or invest a significant portion of their income, thus reducing their GST rate.

The forum thus threw up six ideas that could be worked on:

1. A database to reduce duplication and to make sure all those in need are included
2. A reduction in wastage and leaks (currently estimated at RM32bn per year)
3. An effort at the Asean level to gradually increase corporate tax levels – this will have to be done over time
4. Permits to buy cars – RM15bn per year
5. Debt monetisation – cautiously at RM30bn per year
6. Targeted subsidies – savings of RM18bn from the petrol subsidy rationalisation alone

Based on the ideas sketched out above, the nation clearly has multiple sources of funds to strengthen the social security net. What is lacking is the political vision and the political will to explore and develop the correct policies. – PSM policy research bureau

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.

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