The 2012 Budget was
tabled on Friday amid high expectations from Malaysians of all walks of life.
Civil
servants, particularly, were anticipating a repeat of 2007′s one-off and
broad-based salary revisions, which pushed their salaries up by between 7.5 per
cent and 35 per cent.
However,
the measures in the new budget turned out to be slightly different from such
expectations – it spelt out a new annual increment structure for civil servants
that will lay a strong foundation for greater flexibility in their remuneration
in the long run.
This
is targeted at increasing productivity in the public sector, which is generally
positive in enhancing government effectiveness in the long term.
Greater
flexibility in the employment terms of civil servants (such as the exit policy
for underperformers) is a welcome move indeed, although its implementation
might meet with initial hurdles as the public sector adjusts to the new
employment culture.
Overall,
with prospects of better remuneration, civil servants are set to get a better
deal in their employment if such measures were to be properly implemented.
An
important implication of better remuneration for highly productive government
employees would naturally be the spillover of higher private consumption in the
future.
It is
generally known that the low- and middle-income segments of the population have
the highest marginal propensities to consume (MPC). With Malaysia having one of
the highest MPC in the region at 0.53 (according to our estimate), private
consumption will likely continue its role as the major pillar that will
spearhead the economy in the coming years.
In
the short term, however, measures provided by the budget will not cause a big
jump in private consumption, at least not to the level that would have happened
if a broad-based salary revision were to be given.
The
mounting concerns about the ever-rising cost of living are addressed by various
measures, such as the provision of subsidies not only for food but also for
petroleum products and cash assistance. As such, speedy rationalisation of
subsidies is not top of the government’s priority list.
Due
to the government’s financial constraints, we observed that many benefits were
dished out on a discriminatory basis. In particular, retirees, senior citizens,
taxi drivers and the lower-income groups are supported via various measures to
ensure that they can withstand the rising cost of living.
We
think positively of such measures but feel that doubling efforts to contain
price increases would trump monetary adjustments in tamping inflation in the
long run. Indeed, the latter move is unsustainable in that the government would
have to continuously fork out higher compensation if prices were to continue
escalating over the years. As such, stricter enforcement of price controls and
the Anti-Profiteering Act should be the government’s next logical focus.
The
measures instituted to address the problem of inadequate savings among retirees
are generally positive, as studies have shown that a whopping 70 per cent of
all retirees tend to exhaust their savings within 10 years.
A new
tax relief of up to RM3,000 on contributions to a Private Retirement Scheme
(PRS) and insurance annuity for 10 years, as well as tax deductions on
employers’ contributions to a PRS for their employees and exemptions on income
of the Private Retirement Fund, are meant to lighten retirees’ financial
burdens.
We
also feel that the mandatory increase in employers’ Employees’ Provident Fund
contributions is bearable for businesses.
The
writer is Chief Economist of Malaysian Rating Corp Bhd
BTimes
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