Tuesday, October 27, 2020

Wage subsidies saved jobs during the pandemic, but at what cost?

Thinning government coffers may mean more taxes in the future.

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The government’s wage subsidy programme, part of its rescue package for businesses ravaged by the Covid-19 lockdown earlier this year, may have come at a high price.

The programme, which cost Putrajaya billions of ringgit, took effect in April and ended last month.

An estimate for a universal programme covering all 21 million working Malaysians given RM1,000 would cost RM21 billion monthly or RM252 billion per annum.

“That is the entire existing federal budget,” said Azrul Khalib of Galen Centre, a research house focusing on public health.

The second phase of the aid cost RM2.4 billion in the form of wage subsidies for companies and businesses impacted by the pandemic, which lately brought about a spike in new cases.

Finance Minister Tengku Zafrul Tengku Aziz recently said the subsidy programme would be extended to May next year.

But with direct cash aid disbursements already in place under the household living aid or BSM, previously known as BR1M, there are concerns that Malaysians themselves will be footing the bill for the additional assistance.

Two sectors hardest hit by the lockdown under the movement control order, or MCO, were retail and hotels. Others such as private pre-schools and kindergartens were also badly affected.

Tens of thousands of workers in small and medium companies were subjected to pay cuts while others were laid off.

The wage subsidy aims to minimise such incidents.

Under the programme, those earning less than RM4,000 a month can receive subsidies of RM600 to RM1,200 depending on the size of their companies, as long as employers can prove revenue loss and give assurance that their staff won’t be laid off.

The move saved over two million jobs, minimising retrenchment at a time of global unemployment.

But there is no escaping abuse.

A company boss was recently arrested for giving false information to claim wage subsidies from Socso, the government’s compulsory work insurance scheme.

He allegedly netted over RM400,000 in a month, although his business did not suffer revenue loss.

But the bigger question is whether businesses prefer to cut costs by retrenching staff, or opt for wage subsidies and retain them.

Economist Lau Zheng Zhou agrees that the wage subsidies helped bring down unemployment.

“The alternative of not continuing with wage subsidies would mean rising unemployment which would also be costly to society as consumption might fall, thereby hurting other businesses and lowering tax revenue,” Lau, of the Institute for Democracy and Economic Affairs, told MalaysiaNow.

But he warned that retaining staff for a prolonged period with wage subsidies would burden the government in the short term, if it means not value-adding workers.

But the bigger question is whether businesses prefer to cut costs by retrenching staff, or opt for wage subsidies and retain them.

“The programme has to be designed in a way that also incorporates re-skilling and the hiring of youth and women.”

Critics also warn that businesses accustomed to receiving government aid will become complacent and fail to build their resilience, including by embracing digitalisation, a key sector which saw a boom from the lockdown.

But while many survived due to online sales, not everyone sees it as practical to adapt e-commerce entirely.

Another issue is the trend of companies bypassing fresh graduates and inexperienced workers.

Lau said some businesses find it easier to pay more to an experienced worker, and that they are also aware that new workers will leave the company once they acquire skills.

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