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Cancelling pension scheme: Is government losing the plot?

Photograph: mole.my

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To raise funds for pensions, the government has to tackle tax avoidance and the race to the bottom among Asean countries, says Jeyakumar Devaraj.

The recent statements emanating from top civil servants, namely Borhan Dolah, the director general of the Public Service Department and Ismail Bakar, the chief secretary to the government, indicate that the proposal to phase out the pension scheme for government servants is being seriously considered at the highest levels of government.

Prime Minister Dr Mahathir Mohamad weighed onto the controversy on 7 September 2019, saying that the total pension bill of RM28bn per year currently (amounting to about 10% of the federal budget) has become a burden to the country. But he did add that a decision has not yet been made on the issue of pension.

The casualisation of labour is a global trend that has many negative consequences. It increases insecurity and leads to underemployment and poverty. It also makes people anxious about their own future and therefore more focused on securing themselves, thus reducing any inclination to help others.

When applied within the civil service, it will lead to a reduction in civil servants commitment and pride in serving the nation and might shift their focus to pleasing their superiors (so that their contracts are renewed) or preparing for alternative carriers while still in government service.

Removal of pension schemes is part of the neoliberal agenda to trim and squeeze the state apparatus driving it to inefficiency, thus justifying further privatisation of essential services to the people.

The Socialist Party of Malaysia (PSM) is against any policies that will undermine social security and make the lives of our people more precarious. We are strongly against dismantling the government pension system. On the contrary, we believe that the way forward for Malaysia is to introduce a universal pension system for the elderly.

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It is high time Pakatan Harapan (PH) leaders reflect seriously. Why do we have government in the first place? What is their role as government leaders?

Of course, maintaining law and order is an important function. So too is making sure that the economy functions smoothly so that goods and services are provided to the people and employment opportunities are generated.

But it appears to us that the PH government has become too focused on making Malaysia seem “business friendly” and on trimming the budget deficit to impress international credit rating agencies.

The PH government seems to have forgotten that one of the most important responsibilities of government is to ensure that no one is left behind – that our society does not become too unequal and therefore unjust.

Surely the PH recognises that in many instances the free market will not meet the basic needs of certain sectors – especially sectors that do not have much buying power.

In other words, the market mechanism may fail to provide adequately for the basic needs of the bottom 40% of society.

Also, PH leaders should take note that corporations augment their profits by keeping wages down. In these circumstances, a responsible government needs to intervene to ensure that the bottom 40% are not pushed deeper into poverty.

It can do this by:

  • legislating a decent minimum wage
  • building a robust safety net for all Malaysians

In both of these important matters, the PH government is not meeting the mark!

The recent proposal from the Malaysian Trades Union Congress (The Star Online, 1 September 2019) that the retirement age should be raised from 60 to 65 should be seen as a cry for help on the part of the working population.

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Official statistics reveal that 68% of Employment Provident Fund contributors aged 54 have less than RM50,000 in their EPF accounts, and most retirees use up this amount within a few years of retirement (The Star Online, 25 October 2017).

Many Malaysians face old age without any savings and, when over 70, are totally reliant on family members who might also be struggling to meet the needs of their own families. This is the backdrop to the MTUC’s proposal.

This is why the Socialist Party of Malaysia has long been advocating that Malaysia implements a pension scheme for all citizens above 70 who do not have a government or social security (Socso) pension.

Our suggestion is that we start with a pension of RM300 per month. As there are about 800,000 people in this age bracket who are not receiving any pension currently, the total bill will be RM2.9bn per year. This is about the same amount as the Bantuan Sara Hidup (Cost of Living) programme ie less than 1% of the total federal budget.

Although RM300 per person is not enough for the elderly to live on their own, it will be a big help to the families looking after them and certainly add to their dignity.

Detractors will argue that our federal budget is already stretched and it will be imprudent to start a scheme that will become more expensive over time as the number of the above-70 group increases.

We disagree. One of the principal responsibilities of government is to ensure that the wealth of our country is shared equitably. We already hold down wages in Malaysia so that we can compete for foreign direct investments and so that our exports can compete in the international market.

In other words, we keep asking our working people to accept low wages for the national good. This is the main reason why many of our retirees are not able to accumulate enough savings for their old age. Isn’t it only fair that we collect part of the wealth generated by the effort and sacrifice of our workers to strengthen the social net and provide a bit of help to them when they are above 70?

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Are these detractors aware that government expenditure has dropped from 43.8% of gross domestic product (GDP) in 1983 to 21.6% in 2019. This decrease is due to several factors including the race to the bottom in corporate tax rates among Asean countries engendered by their desperation to attract foreign direct investments. Our corporate tax rate was 40% of corporate profits in the 1980s. It is now 24% of profits – and falling!

Another factor is financial liberalisation brought about by World Trade Organization (WTO) rules and the free trade agreements we have signed on to. These rules enable large corporations to siphon out their handsome profits to tax havens through transfer pricing – thus avoiding taxes in Malaysia.

Low corporate tax rates and tax avoidance are not ordained by the Almighty. They are the result of the overwhelming power of the richest corporations in formulating trade and financial rules. They are man-made and can be, by men, unmade! This decrease in government revenue is a major reason why the PH government is now talking of phasing out the pension scheme for government employees.

PSM believes that it is the duty of government to tackle tax avoidance and the race to the bottom among Asean countries. Then the government will have the funds to expand social expenditure on pension, improve healthcare, increase the budget of the welfare department, improve public transport and finance greener sources of energy.

Of course, this will require a multinational effort and cannot be accomplished overnight. But has the PH government embarked on this course of action? Has it even contemplated it?

Currently, the PH’s knee-jerk response to any proposal to increase social expenditure is to say, “Sorry, no funds. Our deficit is already too big.”

This knee-jerk response is simply not acceptable. The government must apply itself to the task of retaining a larger share of the wealth that Malaysia is contributing to the global economy and use these funds to make Malaysia a more equitable society.

This is the responsibility of government. Please fulfil it!

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