Bantuan Rakyat 1 Malaysia (BR1M): 4 Reasons Why It Is Good and Necessary

Introduction

 [1]   BR1M 2014 was launched yesterday, 22 February 2014 to some fanfare. According to reports, RM4.5 billion has been allocated for BR1M 2014 which would benefit some 7 million people.

[2]   Personally, I am a fan of the initiative, as I believe targeted subsidies are the way to go – let those truly deserving get government assistance, and for people like me, we can take care of ourselves.

[3]   Personally, I stand to lose from BR1M. I am not entitled to it, and any reduction in subsidy will mean I pay more for certain goods (and being in the middle income bracket, I’m not rich enough to the point that it wont matter *Sad face*).

[4]   Nevertheless, I feel that the benefit to those who really need the targeted subsidy outweighs my personal (and financial) interest.

[5]   And yes yes, if the Government plugged leakages and wastages, strengthened the economy etc. etc. we’d be in a much better position, financially and purchase power-wise, but hey, that’s a grouse for another day (and don’t worry, I won’t let that go. Just waiting for the next Auditor-General report).

[6]   In this article, I want to look at BR1M and write about the 4 reasons why BR1M is good an necessary. I do not think it is political candy (and my staunch-opposition economist friends say that it’s in fact a good idea – but PR cant say that). So, here’s a preview of the 4 reasons:

            a.      A web of benefits;

            b.      Targeted subsidies are the future;

            c.       Right time;

            d.      Br1M is more sophisticated than it looks.

A little about BR1M

[7]   Anyway, BR1M, short for Bantuan Rakyat 1 Malaysia or 1 Malaysia Peoples Aid, was introduced in 2012 by the Malaysian Government. According to some website (which might belong to cyber-troopers), it was introduced: (a) To assist low-income households manage rising costs of living; and (b) As part of a long-term plan to reduce Government subsidies on essential goods.

[8]   BR1M’s overarching objective is to ensure that only Malaysians who need the assistance, regardless of race and religion, are able to enjoy financial assistance from the Government.

[9]   In 2012 and 2013, RM500 was given to households earning less than RM3000 a month. In 2014, the amount is being increased to RM700 (650 + 50 for insurance) for households earning less than RM3000 a month and to households with an income range between RM3000 and RM4000 per month. An additional RM50 for Takaful (insurance) will be provided for every household recipient, giving access to vital insurance coverage which includes medical coverage. Individuals earning below RM2000 will receive RM300.

[10]     In 2013, there were 6.8 million recipients of BR1M. In 2014, there will be about 7 million (and increase of 1.2 million). It’s important to note that this isn’t because Malaysians are earning less or becoming poorer, but because the BR1M net has been cast wider, and more Malaysians will benefit.

Point 1: A Web of Benefits

[11]     RM650, RM450 or RM300 may not appear to be a lot of money for some, and the reality is that it isn’t. But to a family entitled to BR1M, it still means food on the table, money for clothes, the ability to pay the monthly water and electricity bill, and even the monthly rent. It gives families and individuals’ breathing space and increased living comfort.

[12]     Importantly, BR1M must be viewed together with the many other Government initiatives and efforts to assist Malaysians. These include existing subsidies for petrol and consumer goods, price controls over essential foodstuffs (around 52 items including chicken, sugar, salt, vegetables), vouchers for school going children (RM100 per child), the milk programme in schools, Government subsidized medical treatment in public hospitals, free primary and secondary education, subsidies for public tertiary education (up to 90% per student), the 1Malaysia affordable homes scheme (PR1MA or Projek Rumah Satu Malaysia), and financial assistance to the elderly and handi-capable segments of society.

[13]     The above, added together with other social safety nets – i.e. efforts by Members of Parliament and MPs, State Legislative Assembly Members (ADUNs), political parties, NGOs, corporate social responsibility programmes led by private and government-linked companies (GLCs) and more – are all meant to assist Malaysians lead comfortable lives. Undoubtedly, most Malaysians are feeling the pinch of rising costs of living, but efforts are being made to make things better.

[14]     I believe the government understands the plight of the people. I’m sure we aren’t Zimbabwe. Similar to how I believe the Selangor and Penang governments care for their people. Absolutism isn’t something I believe in.

[15]     There will always be natural incentives to ensure that Malaysians are happy and are able to live comfortably. Happy Malaysians means a happy electorate, and politically, well, it goes without saying that politicians and the government will work hard to take care of the Rakyat, as the benefits are reciprocal. To allege otherwise would make no sense.

Point 2: Targeted Subsidies - Right for the Rakyat

[16]     I say that BR1M is the right move for the Rakyat.

[17]     BR1M is a targeted subsidy. It targets the most needy of Malaysians, regardless of religion and race. The unfortunate truth is that general subsidies are open to abuse. I don’t want to sound petty, but reality is that the narrative tends to go as follows:

a.      A company with a fleet of cars, factories, etc. uses up more resources and subsidies than the average Malaysian is able to. Some argue that “We generate income and create jobs”. While that is true, they also generate profit using Malaysian resources. Their profit motive negates the claim that they are entitled to subsidies. They are able to factor expenses into their profit margins. Benefitting from subsidies creates a false sense of business efficacy. It just doesn’t make sense.

b.      Rich Malaysians use more subsidies than the poor because they consume more (petrol, electricity, and even, food). Some say “Let them. They pay higher taxes”. True. However, the ratio of tax paid to the amount of subsidy used it far higher than other segments of the society. The more important philosophical argument is whether they need the subsidy. Arguably, they don’t. Again, not wanting to sound petty, but if one is able to afford a Mercedes or BMW, cheap petrol should be the least of their concerns.

[18]     As a principle of economics, targeted subsidies make sense. They are given to those who need them the most. They form part of the government’s machinery to assist its people, while at the same time balancing its books. It recognizes the need to respect a free market economy which promotes competitiveness and innovation, while protecting the most vulnerable from exploitation and unfettered opportunism. It enables the government to prioritize welfare concerns while respecting companies and corporations profit motives. This is the Malaysia we are striving for.

[19]     Contrary to many naysayers, Malaysia’s economy has grown at an average of between 4.5%-5% every year over the past 5-10 years. In 2013, it was 5.1% (beating market expectations of 4.8%). FDI (foreign direct investment) is up (a record RM39 billion in 2013). Unemployment is relatively low at 2.9% for the generalworking age population. Around 1 million young people (18-30 years old) are unemployed (out of about 12.9 million), and this is extremely low in comparison to Spain where about 56% of their youth are unemployed (link).

[20]     We will be able to achieve BR1M of RM1200 in 5 years if we continue on the part that has been charted. In the long run the government will theoretically be able to provide more. I believe this is a good thing.

Point 3: BR1M – the Right Time

[21]     I feel that BR1M has been introduced at the right time.

[22]     Dependence on subsidies is not sustainable. In 2011, RM32.8bil was spent on subsidies. In 2012 it was RM33.2bil. When the prices of sugar went up in 2012, the Government increased sugar subsidy to 54 sen per kg, just to maintain prices.

[23]     There is a hidden danger here. Increasing subsidies may maintain prices, but it eats into funding for other important efforts. Increased subsidies means less funding for education, healthcare and public amenities. For perspective: The nearly RM1bil increase from 2011 to 2012 could be used to build a new KLCC! This in turn has an indirect and direct effect on Malaysia’s long term growth, which could in turn affect our ability to lower prices or increase wages.

[24]     When BR1M was introduced in 2012, long before the current major concerns with price hikes arose, the Government showed good foresight and had introduced a prudent plan to address (a) the increasing subsidy bill; and (b) the effects of the unavoidable inflation.

[25]     In respect of the increasing subsidy bill:

               a.      In 2013, the Malaysian Government spent RM2.9bil on BRIM but it had saved RM1.1bil from subsidy cuts. Yes, there was a deficit of RM1.6bil, but this will gradually decrease.

               b.      In 2014, the Malaysian Government will save RM3.3 billion due to subsidy cuts whereas the spending for BR1M is expected to be at around RM4.5 billion. So the deficit is now reduced to RM1.2 billion, but with a much large chunk of the economic wealth going to those who need it most.

               c.       In the long run, the amount saved through subsidy rationalization will be higher than the amount spent on BR1M, even if more money is handed out under BR1M.

[26]     In respect of inflation (link to some sources here):

  

               a.      As at January 2014, Malaysia’s inflation rate stood at 3.2%. Though relatively high, this is much better than other countries such as Brazil (this economic powerhouse’s inflation rate is at a whopping 5.79%), Cambodia (4.18%), Hong Kong (4.3%) and Indonesia (8.3%). Philippines was marginally better than us at 3.19% while Singapore recorded a 1.5% rate. Malaysia should no doubt aim for better. 3.2% is the highest in Malaysian history, but this is a reaction to the various price increases from end-2012. The inflation rate should stabilize later this year and our economy is predicted to grow, further cushioning inflation. But I understand, this must be translated to more affordable prices for the Rakyat.  

               b.      Nevertheless, BR1M allows the government to assist those who will be hit hardest by inflation. The truth is that increased inflation means some people earn more money and become richer, but many others suffer. BR1M, being a targeted subsidy, allows inflation to be managed appropriately without stifling free market forces.

Point 4: BR1M is sophisticated

[27]     I doubt BR1M is merely a political ploy. Admittedly, it can be seen as a populist policy. But opponents will say anything for political expediency. I think Malaysians are wiser than that and voters vote based on real policy considerations, and not merely on handouts. This is evidenced by the closely-fought elections that took place during GE13 in 2013.

[28]     The truth is that BR1M makes sense and is more sophisticated than many give it credit for.

[29]     Economists from the Ministry of Finance, Bank Negara, the Employees Provident Fund, the Performance and Management Unit (PEMANDU) and Permodalan Nasional Berhad (PNB), had come together in the creation of BR1M. Sociologists, academicians and private sector parties were also brought in during a PEMANDU lab to discuss BR1M.

[30]     BR1M was discussed in the context of subsidy rationalization and combating the effects of inflation. The budget for BR1M had to be sensible in view of the double funding that could be incurred during the infant stages of the project – i.e. funding for BR1M plus funding for subsidies (which have to be reduced gradually). The likeliness and timeframe it would take to achieve equilibrium and ultimately benefit was one that featured at the top minds of these experts.

[31]     Ok, fine, these are obviously group with a vested interest to make BN look good.

[32]     However, how far can you get with a bluff that costs RM4.5 billion? And I doubt intellectual dishonesty is so great to let this get far (I rather not believe that. I like being intellectually honest, and being Sensible Sam means staying on the fence and calling out the good for the good and ripping into the bad for the bad – regardless of BN or PR).

[33]     But don’t just take my word for it.

[34]     Similar programmes like BR1M have been done in the US, Iran, Indonesia, Egypt, Nigeria and other places in the world. The forms may differ and at times it is called direct-cash injections. Whatever the labels may be, its efficacy has been lauded by various economists.

[35]     In the book entitled “Just Give Money to the Poor” by Joseph Hanlon, Armando Barrientos and David Hulme, they are argue in support of such an initiative and trace its benefits to certain communities. I do not say that 1 size fits all, but in Malaysia, BR1M works.

[36]     I dare say that the PR cannot wholeheartedly deny BR1M as being an economic model that works and is beneficial. They may suggest different ways to execute it, but the core and foundation remains constant.  

Conclusion

[37]     I agree that many other things need to be done. The Government needs to reduce spending, the civil service must be more accountable in relation to purchasing equipment, illicit outflow of funds has to be tackled, and the tax regime has to be reviewed. Nevertheless, these solutions are not mutually exclusive.

[38]     BR1M is one of the initiatives necessary for Malaysians.

[39]     That said, BR1M should evolve in the future to avoid abuse or to avoid incentivizing laziness or complacency. BR1M recipients should be assisted with existing financial management services and may be released periodically to ensure that it isn’t wasted on frivolous things (especially if the handout goes up up up!)

[40]     These are the challenges to any government effort and the government should be proactive to address arising problems. At the same time, the government should continue to strive to assist Malaysians raise their household incomes to one day achieve high-income nation status.

[41]     Based on the above, to simplify BR1M as vote-buying is unfair. To call is political candy, well, it might be sweet for some, but undoubtedly there is a necessary sour for others (especially Malaysians whom can afford it and businesses that will lose the benefits). BR1M strikes a fair balance.

[42]     I sincerely hope that I wont have to eat my own words for this article. But my sensibility says this is the right thing for us. Fingers crossed. :)