Win-win situation for all Malaysians

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.