Six creative ways to fundraise for social protection

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

Dr. Jeyakumar Devaraj, National President of the PSM, explained that political parties, NGOs and business groups submit their proposals and requests for funds for particular programs.

He listed some of the programs that PSM had requested in its ‘Rakyat minta lima’ (People want five issues addressed) campaign launched late last year.

The programs requested and the estimated cost per year:

  • RM12bn – Universal pension for people over 65
  • RM8bn – Ministry of Health budget increase
  • RM8bn – 100,000 people’s housing project houses per year
  • RM5bn – Nationwide bus-based public transport
  • RM5bn – Rehabilitation and modernization of our forests, rivers and domestic waste disposal systems
  • RM10bn – Free higher education up to first degree

He pointed out that the estimated total cost of these six programs is RM48 billion.

He then explained that the estimated expenditure in the 2022 budget was RM332 billion against an estimated income of RM234 billion, resulting in a revenue shortfall of RM98 billion, which needs to be covered by bonds. floating for this amount.

He also pointed out that the federal government’s debt as of December 2021 stood at RM995 billion and that RM110 billion of this debt would mature in 2022 and need to be repaid (by issuing new bonds for that amount).

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Given that our debt service bill is around RM43 billion for 2022 (still more than the Ministry of Health budget of RM32 billion!), it is no surprise that the government is reluctant to engage in new social protection programs.

Jeyakumar said it is therefore important for civil society to consider how the various programs and projects requested by MSPs could be funded. This was the main subject of the September 29 forum.

1. Reduce duplicates

Segambut MP Hannah Yeoh, the first speaker, raised two main ideas. She said there are 110 different welfare programs run by various ministries. But only 10% of them are managed by the Ministry of Women, Family and Community Development. So there is a lot of duplication and waste.

She proposed that there be a national database of all recipients of social programs so that aid can be targeted more effectively.

2. Reduce waste

The second point raised by Hannah was the fact that public expenditures are often significantly increased by the way contracts are subcontracted to other suppliers. It also leads to a lot of waste.

Of the estimated total expenditure of RM332 billion for 2022, RM30.4 billion was budgeted for the procurement of goods and services, while RM77.6 billion was earmarked for development expenditure – a total of RM108 billion.

According to Hussamuddin Yaacub of Rasuah Busters, about 30% of these two categories of expenses are wasted due to excessive markups. This would amount to around RM32 billion for 2022 – more than enough to fund the old age pension scheme, multiple environmental greening schemes and free education up to tertiary level.

3. Raise corporate tax rates

Jeyakumar, the second speaker, spoke about the need to tackle the corporate tax race to the bottom that ASEAN countries 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 come down to 24% of profits as Malaysia competes with its eastern neighbors. ‘ASEAN to attract investment, domestic and foreign. Thailand’s corporate tax rate is 20% of profits, while Singapore’s is 17%.

Jeyakumar said if Malaysia unilaterally raises its corporate tax to 30%, there is a risk that new investment will decline and Malaysia will fail to create enough jobs for young people entering the labor market.

The solution must therefore be to raise corporate taxes in tandem with other ASEAN countries. Jeyakumar suggested that Malaysia should start discussing with other ASEAN countries to adopt a plan to each increase their corporate tax rates in stages over the next 10 years so that all reach a tax rate. companies 30% of profits. In other words, Thailand would increase by 1% per year, while Malaysia would increase its corporate tax rate by 0.6% per year.

Increased tax revenue would not only allow ASEAN countries to strengthen social protection for their populations, but would also increase aggregate demand, creating new opportunities for businesses. This would be a win-win situation for all countries, but it would take some time to negotiate such an approach.

4. Require permits for new cars

The second idea put forward by Jeyakumar was that the government should require people to buy a license to buy a new car. (Singapore currently auctions these permits!) The price of the permit should be proportional to the engine capacity of the car.

Currently, Malaysians buy around 500,000 new cars every year. At an average price of RM30,000 per permit, this permit system would mean an income of RM15 billion per year.

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

Such a program would have many “externalities” – a reduction in congestion on our roads, a reduction in endless road construction, a reduction in greenhouse gas 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. Monetize debt

The third idea put forward by Jeyakumar was “debt monetization”. This involves selling government bonds to Bank Negara at very low interest rates (perhaps 0.1% compared to the 4.3% we currently pay to private investors who buy government bonds ).
This would provide the government with additional funds to strengthen the social safety net without increasing debt servicing.

Jeyakumar warned that this fundraising modality should be used wisely (perhaps capped at RM50 billion initially) as it could put some pressure on the ringgit – as with every additional ringgit the Malaysian public spends, imports increase by 30 sen.

An increase in the Malaysian ringgit in international financial markets would tend to lower the ringgit exchange rate. It could also have the effect of increasing the cost of borrowing, as investors in Malaysian government bonds would consider the possibility of the ringgit depreciating and the value of their investments. Jeyakumar suggested that this modality be studied and used with caution to increase funds for social protection.

6. Target subsidies for the poor

Dr. Muhammad Khalid, researcher and author of The Color of Inequality, was the final speaker. He explained that the current system of untargeted subsidies benefits the richest 20% of the Malaysian population much more than the poorest 40%.
The petrol subsidy is estimated at RM30 billion for 2022. Dr Muhammad pointed out that the richest 20% tend to travel more and use bigger cars. This subsidy therefore disproportionately benefits the richest households compared to the poorest households.

He suggested targeting subsidies using the databases currently available to the government, so that subsidies only benefit the poorest families. For example, the bottom 60% of families could receive cash transfers of RM200 per month to cover their petrol costs, but the price of petrol at the pump should be able to reflect the market price – currently a little more than RM 4 per litre.

The move would see the government pay out RM12 billion as a petrol subsidy to the poorest 60% of families, significantly less than the RM30 billion that will be spent this year – a saving of RM18 billion. .

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 reintroduced because it is a regressive tax. Poorer families pay a higher GST rate because they spend all of their income, while the richest 20% save or invest a significant portion of their income, reducing their GST rate.

The forum thus launched six ideas on which to work:

  1. A database to reduce duplication and ensure everyone who needs it is included
  2. Reduced wastage and leakage (currently estimated at RM32 billion per year)
  3. An Asean level effort to gradually increase corporate tax levels – this will need to be done over time
  4. License to buy cars – RM15 billion per year
  5. Debt monetization – cautiously at RM30 billion per year
  6. Targeted Subsidies – savings of RM18 billion from streamlining petrol subsidies alone

Based on the ideas sketched above, the nation clearly has multiple sources of funding to strengthen the social safety net. What is missing is the political vision and the political will to explore and develop the right policies. – MSP Policy Research Office

AGENDA RAKYAT – Lima perkara utama

  1. Tegakkan maruah serta kualiti kehidupan rakyat
  2. Galakkan pembangunan saksama, lestari serta tangani krisis alam sekitar
  3. Raikan kerencaman and keterangkuman
  4. Selamatkan demokrasi dan angkatkan keluhuran undang-undang
  5. Lawan rasuah dan kronisme
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