How will COVID-19 change the budget-drafting landscape?
This is the second part of the interview-based article with MP Wong Chen. Readers are recommended to read the first part relating to Budget 2020 before proceeding to this article.
Shortfall in Government Revenue
As mentioned in the previous article about Budget 2020, Wong Chen explained that the national budget should not be thematic in nature but rather focused on the revenue and expenditure of the Government. During these unprecedented times, the revenue aspect of the budget has to be sorted out first as the Government should strive to raise sufficient funds in order to finance both operating and development expenditure.
Wong Chen forecasted that this may be the first time where the Government has to borrow money to fund operations. As estimated by the Inland Revenue Board, the reduction in tax collection from the usual RM150 billion to just over RM100 billion this year arising from significant losses suffered by most businesses will be the key reason for the reduction in Government revenue.
However, there is a silver lining as the Government has a “perpetual money machine”, which is the Employees Provident Fund (EPF) which will purchase Government bonds, resulting in a revenue stream for the Government.
Despite uncertainties in revenue collection, Wong Chen anticipated that the Government is unlikely to re-implement GST which was first introduced on 1 April 2015 as it would cause further disruption during these difficult times.
“Introducing GST is a political timebomb, so [the Government] needs the political will for this.” – Wong Chen
Drastic Increase in Unemployment – The Economy’s Biggest Nightmare
Flipping to the other side of the coin, what areas should the Government then spend on to alleviate the struggles caused by COVID-19? Ultimately, spending at the operational level should first be reduced by combating corruption which requires a Governmental reform. Nevertheless, in Wong Chen’s opinion, the main struggle of the Rakyat arising from the pandemic is unemployment. Therefore, the Government should place high priority in wage support and retraining programmes in order to increase employment and hence improve the overall economy.
“If unemployment hits 10% of the workforce, we will have a financial problem as consumption will also drop by roughly 10%. If consumption drops by 10%, then shops will also close by 10%. This will perpetuate the spiral of unemployment again and again.” clarified Wong Chen.
The economic system may collapse as unemployment grows rampant and therefore the unemployment rate should be kept at a maximum level of 10%. Unemployment rates differ by country which renders a like-for-like comparison difficult.
According to the Ministry of Higher Education, youth unemployment rate is predicted to skyrocket to 25% from 13.8% in the previous year. When asked about the likely measures the Government should take in order to assist youths during this difficult period, Wong Chen clarified that the main issue lies within corporations, specifically corporate culture in general.
Corporations Must Survive But Corporate Culture Must Go
Wong Chen explained that the core component of the economy starts from corporations at the micro level. If corporations do not survive this hard-hit time, unemployment will continue to increase and therefore the economy would further spiral downwards. The Government’s role in adjusting fiscal policies and base lending rates will only have a low impact as the corporations themselves must change and challenge the status quo.
The embedded culture of wage inequality and greed will always pose a problem in terms of social responsibility. As an example, most Chief Executive Officers (CEOs) are paid averagely 400 times higher than the average worker. This may then be justified by the mantra to always maximize profits and benefits to shareholders, leaving the social aspect such as employment tucked away as the last thing on their minds.
Technology advancements only exacerbate the problem as corporations believe that the human workforce could be reduced significantly. Wong Chen remarked that technology should only be used as tools in order to enhance productivity and reduce workload, not as the green light to increase unemployment.
One way to solve this underlying problem is to reinforce the idea that employees should be shareholders as well. For instance, Germany is a prime example of good corporate culture that practices giving 49% of shares to employees. As a result, unemployment is not a big concern as there is goal congruence between all employees regardless of seniority, resulting in low inequality amongst the workforce. This culture can be adopted in Malaysia by consciously hiring more youths and repopularise employee share option schemes after working for a few years.
A change in culture is not as easy as turning a switch off. The short-term solution that can be done by the Government is to create a social safety net in order to support the public moving forward. This can be done through direct or indirect handouts to assist the Rakyat financially but this risks creating a culture of expecting handouts and hence destroying the recipient’s self-esteem.
The Third Wave
As long as a vaccine or a cure for COVID-19 has yet to be made widely available, the Government would have a dilemma on whether to safeguard the public’s health by sectioning off sectors of the economy or to carry on with business as usual. The upward trend of infected cases and death tolls may seem mild in comparison to other countries but it will further hurt the employment market if it continues. Wong Chen remarked that the Government should bite the bullet by enforcing closure of offices or shopping malls in high-risk areas in an effort to reduce the infected cases. In the medium-term when the pandemic nears an end, Wong Chen is optimistic that the economy will recover and employment will return to previous levels.
Journalists: Amanda Lee, Tiffany Teng
Reviewers: Stella Teoh
Editors: Arivaasaran Arjunan, Hui Zhen
Download Article: Budget 2021: Conventional or Unparalleled?