Budget gives more cash for hardest hit but what happens after it’s gone?

One of the key aims of Malaysia’s Budget 2021 was to ensure the financial welfare of the people hardest hit by the pandemic.

To do this, proposed provisions include increased allowances for medical frontliners and reduced income tax rates for 1.4 million taxpayers.

There is also loan repayment assistance for borrowers in the B40 group, continuing on from the blanket loan moratorium that ran from April to October. In this second phase, banks are expected to offer loan moratorium extensions as well as flexible options for loan repayments to those with reduced incomes or job loss.

Also, cash handouts for households in the lower income bands now include the lowest band of the M40 group.

Such measures are designed to increase cash in hand and boost spending in these times of unprecedented economic crisis, but problems remain.

Research analyst Zulaikha Azmi of the Institute for Democracy and Economic Affairs praises the reduction in income tax rates.

“It’s a good step at this point as the country needs an expansionary fiscal policy,” she tells MalaysiaNow. “It’s also good that the government is continuing and broadening financial assistance according to the number of children each family has.”

The budget proposal is for families in the B40 group to receive cash assistance ranging from RM500 to RM1,800 under the Bantuan Prihatin Rakyat programme. The more children in a household, the more cash will be provided.

“This will really help families heavily affected by the MCO (movement control order),” says Zulaikha. “However, financial assistance is only for the short term, and the government needs to address the mid to long-term solutions needed to replace this financial assistance.”

Finance professor Izlin Ismail says, “The strategy of putting cash into more than eight million pockets instead of tax rebates and exemptions is designed to boost consumption in the hope of stimulating the economy. This has a faster impact than quantitative easing where money is injected into the economy through the financial system.”

She also questions the lack of clarity regarding the provision for eligible households where there are no children.

“Financial assistance is only for the short term.”

Zulaikha says, “Most lower income households consume basic needs only so the cash assistance will be spent mainly on food, shelter and prepaid mobile. They will probably spend more on a greater variety of food and household items, and perhaps on private tuition, which will support the local economy.”

However, while economic activities continue under the conditional MCO, children will be confined to home as schools stay shut until January. This means working parents whose jobs do not allow them to work from home will need childcare services for their young children.

Single working mothers or female-headed households in the B40 group may not find one-off cash aid a long-term solution to the rising cost of home childcare or sending the child to a childcare centre, once other options such as friends or relatives helping out are exhausted.

“The cash assistance is most likely not enough for childcare, though the government recognises this issue and has allocated RM30 million for childcare services for frontliners and the public sector, and RM20 million to encourage the private sector to provide childcare facilities on their premises,” says Zulaikha.

“However, there is a buffer time before this will be implemented.”

By the time such childcare provisions are passed and executed, the temporary benefit of one-off cash assistance will have been exhausted, putting families back at square one in planning how to ensure children are supervised at home while parents go out to work.