The Economy of Handouts

The Economy of Handouts 

(theSun, 9th February 2013)

During a recent handout event of BR1M 2.0, or the 1Malaysia People’s Aid, Prime Minister Najib Abdul Razak said this proved the Barisan Nasional government was a champion in administering the country and managing the economy. Under the scheme, some seven million people were estimated to receive the aid, including 4.1 million recipients of BR1M last year. In short, these were direct one-off payments of RM500 to households with a combined income of less than RM3,000 a month, and RM250 to singles earning less than RM2,000 a month.

This close to the polls, (the 13th general elections must be held in June this year at the very latest), one cannot help but draw a connection between the two. An Umno politician stated that it has nothing to do with the elections since the first installation took place last year, quite forgetting that if not for Bersih 2.0 in June 2012, an election may well have been called for that year.

It seems fairly obvious that these goodies are meant to boost Barisan’s popularity ahead of the elections. And although vote-buying itself would not be considered legal, this is where the lines are blurred. Article 10(3) of the Election Offences Act 1954 considers anyone who makes any such gift, offer or promise in order to induce or “procure… the vote of any… person” guilty of bribery. It can, however, be argued that there is no direct inducement taking place in this particular situation. Recipients of the cash aid are in no way obliged to vote for Barisan – of their own free will, anyway.

The Economics of Cash Handouts

The more important question is whether such a cash handout should be considered good policy or not. On the one hand, the cash genuinely does help those struggling to make ends meet, and could be considered fair returns of money rightfully belonging to the rakyat. After all, Pakatan state governments also have cash schemes to help the poor and underprivileged.

But there is, in fact, a difference. A big one. Selangor and Penang, both Pakatan-led states that provide financial aid for senior citizens, children and the disabled, have far surpassed their predecessors’ financial performance. Selangor increased its cash reserves to RM1.9 billion in 2011, its highest in 28 years whilst Penang successfully reduced its state debt by 95% from RM600 million to RM35 million in the same year.

This is not the case for the federal government, which has a run a fiscal deficit since 1997. Although it has fallen slightly from its 22-year high of 7 percent in 2009 to 4.5 percent in 2012, our fiscal records aren’t very stellar. Our debt to GDP ratio is at 53 percent, just below the statutory limit of 55 percent.

Both BR1M packages will cost the government an estimated RM2.6 billion and RM3 billion respectively. Najib stated that because the economy continues to expand, this results in increased tax collection and therefore the reason for which BR1M can be dished out.

In reality, a huge RM13.8 billion supplementary budget was tabled in June 2012, forming almost 5 percent of the original budget. Out of this, RM7.5 billion was for cash aid and oil and gas subsidies.

Perhaps we would feel at ease if the budget was more transparent and Malaysians could track where every ringgit and sen of tax-payers’ money is being spent. But here again the country falls short.

In the Open Budget Index 2012 released earlier this week, which measures budget transparency and accountability around the world, Malaysia fell in its rankings from 54th, to 55th and finally to 62nd position in 2008, 2010 and 2012 respectively. Scores also fell from 35 to 39 out of a hundred. Placed shamefully in the category of “minimal information”, our neighbour Indonesia outshines us by scoring 62 and ranking 20th of the 98 countries surveyed, providing “significant information” on its budget.

Popular Populism

The other difference between Pakatan-state financial aid packages and BR1M is that whilst the former is structured, specifically programmed and built into the state’s annual expenditure plans, the latter is a one-off handout.

Whilst people may benefit temporarily with the cash in their pockets, is this really the most optimal use of national funds? Would these billions of ringgit not be better used for investing into education, building skills and talent which would eventually improve productive capacity and increase incomes – all areas that a federal government actually does govern?

Of course, this isn’t really new. It has been common practice for governments around the world to engage in populist policies in order to win over the masses – you do not bite the hand that feeds you – and making people dependent on government for basic survival is a sure way of staying in power. Former Thai Prime Minister Thaksin used the central government’s “Village Fund” as a policy – and not a direct bribe by politicians – to woo rural voters.

A Merdeka Center survey in December 2012 not surprisingly revealed that satisfaction levels with Prime Minister Najib Razak’s performance was highest at 80 percent among households with a monthly income of below RM1,500.

Although BR1M itself may not necessarily fall under the category of vote-buying, it does come dangerously close. Our former Prime Minister also implied as much in a recent speech of his. And if so, the Election Commission could certainly do more to monitor all forms of vote-buying, which is its responsibility anyhow. After all, its role is to regulate and manage “free and fair elections” (Election Commission Website), which can only be accomplished by way of a bribe-free level-playing field.

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