One of the issues people are most concerned with is that of the rising cost of living – this is something the politicians will have to consider in the upcoming elections. A version of this was published in theSun on 24th February 2012.
Dealing with Rising Cost of Living
A recent report alarmingly ranked Kuala Lumpur as the 74th most expensive city in the world, compared to 86th last year. Data from the Economist Intelligence Unit’s (EIU) “Worldwide Cost of Living 2012” report (the full version of which was only made available to the Malaysian Insider) showed that KL’s cost of living index rose from 67 in June 2009 to 83 this month, increasing by 23 percent. KL is “83 percent as expensive as New York” (The Malaysian Insider, 17 February 2012).
Of course, Malaysians would not need a report to believe that costs of living are on the rise. Living in the city especially means expenses on food and transport take a big cut off your monthly income. It comes as no surprise that the Consumer Price Index (CPI), which measures inflation, increased by 3.2 percent in 2011 compared to the previous year. The groups that had the highest price rise were food and beverages (both alcoholic and non-alcoholic), transport, restaurants and hotels, and tobacco (Department of Statistics Malaysia, 18 January 2012).
Malaysia sailed through the 1980s and 1990s to enjoy a steady growth rate of more than 7 percent on average, yet with a relatively low inflation rate. But times have changed. Whilst we did achieve a 5.1 percent growth rate in 2011, inflation is steadily rising year-on-year. In the meantime, 60 percent of Malaysian households earn less than RM6000 monthly, with 80 percent of households earning an average income of RM2500.
Political Implications
Coupled with global economic uncertainty, the economic climate in Malaysia is certainly not too bright. And everyone knows that costs of living are high on the list of electoral issues. The dilemma that the federal government has to face this year is how long it can hold off calling an election amidst troubled times. The alternative is to wait till a full five-year term, but risk an even worse-performing economy.
Whichever the case, the government is well-aware that the increasing costs of living will inevitably affect voting outcomes. Public sentiment already flares whenever talk of subsidy removal, toll or tariff hikes surface. It is, after all, the bread and butter issues that people are ultimately concerned with.
Enter the flurry of financial schemes that have recently been announced by the federal government. There have been so many, coming one after the other like raining bullets, that one needs to pause to examine each carefully.
First, announced last year, was the New Civil Service Remuneration Scheme (SBPA), in which civil servants would now retire at the age of 60, and receive salary increments and bonus payments. This would presumably please (or placate) the 1.4 million civil servants – although it seems to have backfired after Cuepacs received numerous complaints from civil servants themselves about the unfairness of the scheme.
Then, there is the Skim Amanah Rakyat 1Malaysia (SARA 1Malaysia) scheme in which low-income Malaysians can take out a loan in order to invest in Amanah Saham 1Malaysia shares (which would supposedly pay out RM13,000 at the end of a 5-year lifespan if all dividends are re-invested).
Schemes Need Further Clarification
Finally, the 1Malaysia Housing Programme (PR1MA), where low-income Malaysians can apply for a housing loan of up to 105 percent to purchase affordable homes costing between RM150,000 and RM300,000. Although this is a positive move for first-time home buyers, it strikes one as odd that the first phase of the scheme prioritises applicants living or working in the federal administrative capital of Putrajaya.
The more controversial part of this housing scheme, which interestingly enough has had Members of Parliament on both sides of the political divide comment on, is that the scheme is being financed by Employee Provident Fund (EPF) money, as a loan to the government. The Federal Territories and Urban Well-being Minister announced that RM1.5 billion of EPF funds would be extended in loans to those who failed to secure commercial loans to purchase their houses, helping some “20,000 eligible tenants and interested buyers” (theSun, 30 January 2012).
Pakatan Rakyat MPs have cautioned that this puts EPF funds at risk, by increasing government debt through an external body. They claim that if these “guaranteed” loans default, the federal government will be directly exposed to the debt and thus trigger a debt-induced financial crisis. Khairy Jamaluddin, UMNO MP, also questions what risk management processes the government would institute before giving out the loans.
Yes, a large part of Malaysians are feeling the pinch of inflation. And yes, it is generally positive that the government is taking this seriously. All the schemes introduced so far, for example, have as their common objectives to assist the low-income group in managing the impact of the rising cost of living.
But these programmes must be extremely carefully crafted and designed, with the lowest risk possible. Let’s not forget that government funds equals the rakyat’s funds. In the rush to implement popular schemes that could boost electoral ratings, such important public policy must ensure not only short-term, but long-term benefits for the country as a whole.
