The trouble with targeted subsidies in tackling cost of living

The government has been urged to conduct a detailed study before implementing targeted subsidies with the Federation of Malaysian Consumers Associations (Fomca) voicing concern that such measures will necessarily differ according to state. 

Fomca CEO Saravanan Thambirajah said each state had its own poverty level determined by individual challenges in cost of living. 

For example, he said, someone earning RM8,000 in Kelantan or Terengganu might be considered part of the high-income bracket or T20 group. 

But the same person earning that amount in Selangor or Penang would only be categorised in the M40 or middle-income group. 

Speaking to MalaysiaNow, he said the provision of subsidies or assistance at a flat rate would therefore do little to help solve the overall cost of living issue. 

"Looking ahead, the government might not be able to bear the giving of subsidies for all," he added. 

But even the giving of targeted subsidies would come with its own set of difficulties, he said. 

For Saravanan, the biggest challenge for the government would be determining which group should receive such assistance – a tricky question in the aftermath of the Covid-19 pandemic. 

He said the M40 were badly affected by the pandemic with some living at the B40 level but receiving no aid as they do not meet the necessary criteria. 

"So the government needs to conduct a detailed study and refer to communities to truly ascertain which group deserves to receive assistance," he said, adding however that this could take a long time. 

Economist Zouhair Rosli meanwhile said that the problem of low savings was actually driven by the underlying issue of low wages. 

Speaking at a recent webinar on current economic issues, he described this as a structural issue which he said had long plagued the country. 

"It's not rocket science," Zouhair, a senior analyst at DM Analytics, added. 

"And it's not a matter of financial mismanagement."

Because of this, he said, many had no emergency savings and had a hard time weathering the challenges brought on by the pandemic. 

He said this was why some of them had continued urging the government to allow further withdrawals from the Employees Provident Fund. 

Another structural problem, according to Zouhair, was the struggle of graduates to find jobs equivalent to their qualifications. 

He said the root of this problem was not a choosy attitude on the part of the graduates but rather the fact that many job openings did not require high education skills.  

"The main problem is that there are no jobs," he said. 

"Out of 100 job openings, perhaps only 15 would be suitable for graduates." 

He said this was why it was important for the government to focus on attracting high-quality investors such as companies in the machinery and information and communication technology sectors. 

"I don't see any commitment in the latest budget either to giving workers a higher distribution in wages," he said. 

"We already know that our salaries are low. The government should take this seriously. It doesn't matter who it is because the situation didn't change either under any of the past administrations."