Malaysia is mov­ing in the right di­rec­tion and deal­ing with eco­nomic is­sues is the norm

New Straits Times - - Opinion -

IF there is one is­sue most Malaysians are pre­oc­cu­pied with, it is the ris­ing cost of liv­ing. What is it, and why does it hap­pen? And, more im­por­tantly, how should it be ad­dressed?

Let us first deal with what it is and its causes. Sim­ply put, the rise in the cost of liv­ing hap­pens when all prices in­crease at a faster rate than what the gen­eral pub­lic earns, such as wages.

There are two el­e­ments here; prices and wages. When this hap­pens, it will di­rectly im­pact the peo­ple as their stan­dard of liv­ing de­te­ri­o­rates over time.

Econ­o­mists use the con­cept of in­fla­tion to un­der­stand this phe­nom­e­non, us­ing the con­sumer price in­dex (CPI) — the cost of a given bas­ket of goods and ser­vices spent by con­sumers.

Usu­ally, the level of in­fla­tion is ex­pressed an­nu­ally, and for the past two years, Malaysia’s in­fla­tion rate was at 2.1 per cent. This year, it is es­ti­mated at three per cent. These num­bers are con­sid­ered sta­ble and re­al­is­tic as Malaysia uses headline rather than core in­fla­tion.

In other words, the in­fla­tion rate in­cludes highly volatile items of food and en­ergy prices in its cal­cu­la­tion. If that is the case, why is the man in the street feel­ing the pinch?

Bank Ne­gara Malaysia, in a re­cent re­port, ar­gued that one of the rea­sons that causes this gap be­tween data and ground sen­ti­ment is per­cep­tion.

Ac­cord­ing to the re­port, it is due to two types of bi­ases.

The first is “fre­quency bias”, where con­sumers tend to fo­cus on prices of goods that they usu­ally buy, such as food, com­pared with other goods and ser­vices.

Sec­ond is the “mem­ory bias”, where con­sumers tend to be alert on price in­creases, but have a ten­dency to over­look when prices are in de­cline.

Re­gard­less, un­less there is a se­ri­ous shock in the econ­omy, prices, in gen­eral, tend to move up­ward as devel­op­ment takes place. But, an in­crease of around two or three per cent should be man­age­able and, in fact, good for the econ­omy.

Of course, when prices go up ex­po­nen­tially (in­fla­tion­ary spi­rals) like what hap­pened in Ger­many af­ter World War 1, or hy­per­in­fla­tion in Zim­babwe in 2008, the econ­omy and the peo­ple will be badly af­fected. But, what we are ex­pe­ri­enc­ing in Malaysia to­day is far from these ex­treme sce­nar­ios.

The other ex­pla­na­tion would be on peo­ple’s earn­ings, such as wages. When wages are not pro­por­tion­ately in­creased in tan­dem with the over­all prices, then one’s pur­chas­ing power would be di­min­ished. This could be the crux of the mat­ter, among other things, and hence, should be one of the main fo­cus when dis­cussing on how to solve this mat­ter. Un­for­tu­nately, this per­ti­nent is­sue is now be­ing highly politi­cised by the op­po­si­tion.

Re­cently, the op­po­si­tion have come up with a non­sen­si­cal nar­ra­tive, that the in­crease in cost of liv­ing is due to one sin­gle fac­tor, that is, 1Malaysia Devel­op­ment Bhd (1MDB).

This ar­gu­ment is clearly un­founded and an at­tempt to mis­lead the peo­ple. And, to sug­gest that the Goods and Ser­vices Tax (GST) was in­tro­duced in or­der to pay off 1MDB’s debt, is yet an­other “fal­la­cious” logic by the op­po­si­tion to de­ceive the peo­ple.

To be­gin with, GST is about struc­tural re­form in the econ­omy. Be­fore GST, our rev­enue­base was oil-de­pen­dent.

This is not sus­tain­able in the fu­ture and truth be told, when oil prices dropped re­cently, GST made our econ­omy less vul­ner­a­ble to ex­ter­nal shocks.

And now, the op­po­si­tion claims that they can bring prices down by abol­ish­ing GST. How out­landish!

Even in the past, the op­po­si­tion ar­gued that by bring­ing oil prices down, over­all prices would also go down. As we all know, this propo­si­tion on the cause and ef­fect has been proven wrong.

The fact that prices are sticky down­ward has been omit­ted in their anal­y­sis. But, more cru­cially, this pro­posal ne­glects the very fun­da­men­tal me­chan­ics of eco­nomics, that is, the prin­ci­ple of trade-off.

How do you deal with the loss of RM40 bil­lion rev­enue due to the drop in oil prices if GST is abol­ished? The same with their other eco­nomic pro­pos­als, such as hav­ing free ed­u­ca­tion and re­in­stat­ing a blan­ket, in­ef­fi­cient and un­just sub­sidy sys­tem?

GST can­not be the sole rea­son for the sus­tained in­crease in prices as even be­fore GST was in­tro­duced, the cost of liv­ing in Malaysia was al­ready on the rise.

The point I want to make here is that the op­po­si­tion must be hon­est about solv­ing the plight of the peo­ple and; as I have men­tioned above, to ad­dress the is­sue of ris­ing liv­ing costs, the em­pha­sis on im­prov­ing the peo­ple’s in­come is cru­cial, among other things.

In 2013, the gov­ern­ment of­fi­cially launched the min­i­mum wage pol­icy.

And now, the gov­ern­ment is in the process of re­view­ing the wage scheme up­ward, es­pe­cially the start­ing salary of fresh grad­u­ates. This is an ex­am­ple of how this is­sue can be ad­dressed.

The gov­ern­ment has many pro­grammes to im­prove peo­ple’s in­come, such as through the Su­perb, Mara, Ter­aju and Magic ini­tia­tives. Be­sides, the gov­ern­ment has also fo­cused on the im­prove­ment of over­all pro­duc­tiv­ity through spe­cific mech­a­nisms un­der the re­cent launch of Malaysia’s Pro­duc­tiv­ity Blue­print.

True, these pro­grammes take time to bear fruit and the bur­den of a high cost of liv­ing is hap­pen­ing now. This is where the Ban­tuan Rakyat 1Malaysia (BR1M) comes in. BR1M eases the peo­ple’s fi­nan­cial bur­den, es­pe­cially for the B40 and M40 groups. Even if the B40 house­hold ex­pe­ri­ences a RM1,500 in­crease due to the spike in liv­ing cost per year, for in­stance, at least they only bear the ex­tra cost of RM300 yearly as the gov­ern­ment has pro­vided RM1,200 per house­hold for BR1M.

It is also wrong for the op­po­si­tion to sug­gest that in­come has stag­nated; a Khaz­anah Re­search In­sti­tute (KRI) re­port said the over­all house­hold in­come has im­proved and the B40 group recorded faster growth com­pared with the M40 and T20 groups. To ar­gue that the gov­ern­ment has failed to pro­vide job op­por­tu­ni­ties is also mis­placed, as around 2.2 mil­lion jobs have been cre­ated since 2010.

The fact is, we are mov­ing in the right di­rec­tion and deal­ing with eco­nomic is­sues is nor­mal be­cause we are pro­gress­ing.

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