New approaches to cash aid

A lesson we ought to have learnt from subsidy rationalisation is that programmes such as BR1M can only grow bigger if it stays. More people would be included in rather than excluded from the eligibility list, which means the funds needed to sustain it can only balloon.

Mazlena Mazlan, NST

As expected, Bantuan Rakyat 1Malaysia (BR1M) is again a goodie in the budget for the fourth time. This time it comes in a bigger bag. The payment will be increased to between RM800 and RM1,000 per family and RM400 for unmarried youth fulfilling the eligibility requirements.

A welcomed enhancement in the programme’s targeting mechanism is the addition of e-Kasih recipients earning less than RM1,000 per month, who will be receiving RM1,050 in the list of eligible groups.

With increases in cost of living showing little sign of abating, it’s certainly a shot in the arm for many households, who are still feeling the burden of rising prices of goods and services caused by a multitude of factors.

Yet, despite being initially designed as a temporary measure it is still around, leaving me ruminating — is this negative income tax here to stay? Going forward, will the list of recipients and, more importantly, its cost grow even bigger?

According to the Economic Report, RM2.2 billion was provided to 4.3 million households in 2011. The figure grew to RM3.5 billion this year, paid to 4.7 million households and 2.7 million single individuals as of August.

BR1M is by no means a bad policy. In fact, a targeted cash assistance programme such as this has undoubtedly clear benefits. A need-based financial aid is always more efficient than a blanket subsidy. In addition, by having e-Kasih recipients as a separate group, welfare recipients who are in real need of a long term aid are no longer lumped with households who only need temporary support to ride out the storm.

Yet, by design and intention some programmes should not overstay their benefits. When BR1M was first announced, it was meant as a one-off cash payment. The case for its introduction was strong in 2011, and because the circumstances prevailed it still is. But after four years, the government should revisit its objectives and impact, and if necessary start shifting gears to a new BR1M 3.0 with a longer-term view.

There are a number of reasons why the programme needs a fresh tack. The most obvious danger is the perception it is creating that the present government lacks the ability to manage the rising living cost, or worse, causing it. The public’s response most recently to the spike in intra-urban toll rates is illustrative of such perception.

It didn’t help that the government made yet another paradoxical argument by justifying the hike with a higher BR1M payment, an explanation which turned out to be arousing resentment more than contentment. It surely didn’t go very well with the middle income group, who themselves are grappling with high cost of living.

Whatever the politicians say, the reality is Malaysians have yet to appreciate the value and importance of re-distributive policies. Then there are also challenges from the macroeconomic standpoint. BR1M, in its current form signals a much bigger underlying problem.

Despite the economy persistently being in full employment, household income growth, particularly on the lower rung of the income scale, lags growth in prices. This in turn points to a structural labour market problem in dire need of a real solution which financial aid alone cannot solve or mask.

But the government must tread carefully. Policies that seek to lift earnings should do so while avoiding an excessive rise in prices. A lesson we ought to have learnt from subsidy rationalisation is that programmes such as BR1M can only grow bigger if it stays. More people would be included in rather than excluded from the eligibility list, which means the funds needed to sustain it can only balloon.

The poignant stories of those struggling to make ends meet are not lost on me, but in principle not everyone impacted by rising cost of living needs income support. The extent of the impact varies greatly and many will be able to make adjustments to consumption patterns and sail through. The challenge is to differentiate those who are really worthy of support from those who aren’t.

The factors that necessitate a prolonged BR1M implementation make the case for a wider and more comprehensive social safety net system. BR1M 3.0 should be a part of this system, but it needs a new form that is not only supportive of the economically vulnerable, but also allows and encourages them to invest in income generating activities to raise their living standards in the long term.

The writer is an independent researcher