What would it take to give monthly financial aid to poor families, self-employed for MCO 3.0?

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According to an economist, Putrajaya can afford to transfer as much as RM2,200 in cash directly into the pockets of struggling poor families and the self-employed whose incomes are again threatened by MCO 3.0. — Bernama pic
According to an economist, Putrajaya can afford to transfer as much as RM2,200 in cash directly into the pockets of struggling poor families and the self-employed whose incomes are again threatened by MCO 3.0. — Bernama pic

KUALA LUMPUR, May 22 ― Putrajaya can afford to transfer as much as RM2,200 in cash directly into the pockets of struggling poor families and the self-employed whose incomes are again threatened by a third movement control order (MCO), said one economist.

The third MCO has reignited debate between progressive and hawkish economists over the need for additional government spending, with the former arguing the government could afford to raise borrowings while the latter harps on a growing deficit.

Zouhair Mohd Rosli, a senior researcher at DM Analytics, a public policy consultant that has worked extensively on poverty alongside agencies like the United Nations Development Fund, said savings is no longer an option if Putrajaya wants to prevent more families from plunging into abject poverty.

He proposed two measures deemed absolutely necessary. The first is a monthly cash transfer of RM1,200 for the bottom 20 per cent income earners for the next six months, on top of direct fiscal assistance for all households in the bottom 60 per cent income decile.

“This will benefit around 4.4 million households. The households in the B20 income group (income less than RM3,000) will receive RM1,200 per month,” he told Malay Mail in an email interview.

The sum would be “appropriate” to prevent already poor households from falling into hardcore poverty, the economist argued.

A year-long study into the effects of travel restrictions by two United Nations agencies and conducted by Zouhair’s research house, showed at least six in ten households have fallen into absolute poverty, underpinning an upward trend since the first MCO was enforced in March last year.

The second target group for assistance should be the self-employed, most of whom are likely to be micro and small brick and mortar business owners, Zouhair said.

Zouhair suggested giving each of them RM1,000 monthly for the same duration with a total cost of RM14.3 billion. — Picture by Hari Anggara
Zouhair suggested giving each of them RM1,000 monthly for the same duration with a total cost of RM14.3 billion. — Picture by Hari Anggara

Cash aid for small businesses

The researcher also noted an increase in the number of graduates relying on small-scale enterprises for income, as the pandemic forced businesses to curb hiring. Government data showed these graduates earned far short of what is needed to live decently in the country’s major cities, an average of RM2,700 a month.

Zouhair suggested giving each of them RM1,000 monthly for the same duration with a total cost of RM14.3 billion.

“Cash assistance on a consistent basis is crucial for this group. A survey conducted by the Ministry of Higher Education also shows that eight in 10 of the graduates who conduct their own business earned less than RM2,000 last year,” he said.

“Therefore, cash assistance at RM1,000 per month is needed. This is different from GKP which is only given once and one-off in nature,” the researcher added.

At just RM38 billion, both the cash transfer programmes would account for less than eight per cent of GDP, giving ample space for more relief measures. Zouhair proposed extending aid to insure the self-employed and subsidising jobs.

For the latter programme, the researcher suggested the state cover up to 70 per cent of contribution in the first six months and reduce the contribution at a rate of RM25 a month or half for the ensuing six months.

Meanwhile existing employment schemes should be beefed up to create more jobs, such as the MyJob@Wilayah programme by the Kuala Lumpur City Hall. This would include raising starting salaries to RM2,500 from the current RM2,000 to meet decent living standards, the economist said.

The sharp spike in daily Covid-19 cases have fueled talks that Prime Minister Tan Sri Muhyiddin Yassin could impose strict movement curbs similar to the first MCO nationwide soon. Several states are already under the third MCO although with looser restrictions.

Businesses have responded to the fresh round of partial lockdown, to last until June 7, will send many folding or force mass layoffs should no government help arrive. For poor households relying on micro businesses to survive, movement restrictions would push them to the brink.

The Muhyiddin administration has yet to indicate if there would be additional spending on top of the RM15 billion worth of relief measures announced for the second MCO that spanned from January 13 to mid February. — Picture by Ahmad Zamzahuri
The Muhyiddin administration has yet to indicate if there would be additional spending on top of the RM15 billion worth of relief measures announced for the second MCO that spanned from January 13 to mid February. — Picture by Ahmad Zamzahuri

Little money

The Muhyiddin administration has yet to indicate if there would be additional spending on top of the RM15 billion worth of relief measures announced for the second MCO that spanned from January 13 to mid February.

Senior government leaders, however, have repeatedly said they would commit to “fiscal consolidation”, citing the need to maintain a good credit rating.

UOB senior researcher Julia Goh said the government’s financial position is tight, having left with just RM17.9 billion in Covid-19 funds after utilising RM38 billion in 2020 and RM9.1 billion in the first quarter of 2021.

Meanwhile government debt has reached RM917.5 billion or 58.5 per cent of GDP by the first quarter of 2021, still below the 60 per cent statutory debt ceiling but only leaves RM22.8 billion or 1.5 per cent for borrowings before it reaches the debt limit, Goh noted.

The government has said it would commit to reduce the fiscal deficit to 6 per cent of GDP in 2021 versus a -6.2 per cent in 2020.

“There would be additional revenue collected from higher oil prices but this would have to offset fuel subsidies allocated to keep retail oil prices (RON 95 and diesel) stable,” the researcher said in an email reply.

But the government could extend previous measures that may be continued and expanded if restrictions are tightened, Goh predicted.

“Relief and financial assistance measures such as the wage subsidy programs, utility bill discounts/rebates, and special tax deductions for rental reductions,” she said.

Other economists have dismissed the concerns around the deficit as unwarranted given the magnitude of the health crisis. Zouhair argued that the total cost for all of his propositions is some RM38.5 billion, or just 8 per cent of GDP.

“It’s on par with other neighbouring countries such as Thailand and Philippines,” he argued.

“Fiscal debt will also increase to around 61 per cent of GDP, only marginally higher than the so-called debt limit.”

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