By TK Chua

The prime minister made a few statements recently about low incomes versus the high cost of living when answering a question in Parliament.

He said the Goods and Services Tax (GST) was not the real culprit – it was low academic qualifications that led to the limited earning potential of the people. He also said some Malaysians were living beyond their means, resulting in them feeling pressured by the high cost of living. According to him, the government had provided sufficient allocations to relieve the hardships of the people as evidenced through bigger allocations to poorer states like Kelantan.

First, I think we must note the difference between “low income” and “high cost of living”. Both are governed by different factors. Low income is bearable if the cost of living has not escalated beyond control.

While we may attribute low income to low education and low skills attainment, it is the escalating cost of living that is doing the damage today. There are many factors that contribute to inflation and the high cost of living – higher taxes, ringgit depreciation (hence resulting in higher interest rates and import prices), subsidy rationalisation, indiscriminate transfer payments, lopsided income distribution, and the damage caused by unproductive sectors. In all these factors, monetary policies play a big part and unless we manage money supply and inflation prudently, no amount of income growth will be able to outstrip the higher cost of living.

Of course the added whammy is the unfettered entry of foreign workers that further displace less educated Malaysians.

I think big governments and an oversized civil service are the major factors that contribute to a high cost of living. The government pays itself and the civil service too much vis-à-vis the real contributions they provide to the economy. If unproductive sectors get too much, the consequence is inflationary. This is basic economics, but I guess we will never admit it.

I agree the government has always focussed their expenditures on the rural areas and poorer states. But this is on paper only. In reality, we must seriously look at the way the allocations are spent. Have we looked at the leakages and the true beneficiaries of government spending? One example is rural schools and clinics without proper teachers and doctors only serve to benefit building contractors more than the actual rural population.

In any economy, there are high and low paying jobs. However this does not mean that low income earners will not be able to sustain themselves, unless of course cost of living and inflation are allowed to run wild.

I agree with the observation that some Malaysians are constantly living beyond their means. They are caught in a lifestyle that is not realistic given their income level. To this group of people, they must either change their lifestyles or find a better paying job.

However as a policymaker, the PM should not be concerned with exceptions. He should rightly be concerned with the general trend. Those who choose to live beyond their means should eventually find their own solutions.

As a policymaker, the PM should focus on managing inflation, preserving the value of the ringgit, right sizing the government and civil service, determining the optimal number of foreign workers given our economic structure and unemployment, and ensuring the effectiveness of government spending and the efficacy of government social programmes.

It is my considered opinion that there are now too many “1Malaysia this and 1Malaysia that”. I do not think we can manage a modern economy this way; it is just too third-world, bordering on nonsensical.

We must seek solutions, not provide excuses to the malaise we presently face.

TK Chua is an FMT reader.

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