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Budget 2024 must focus on raising incomes

Economy minister Rafizi Ramli is right to say that many multi-dimensional social and economic issues are best addressed by raising incomes rather than holding down prices.

This is true of all income levels, not just for the poor.

For example, many people on low income are denied healthcare because they cannot afford high transport costs to get to clinics. Many avoid treatment due to high healthcare bills and lack of cash.

Often they cannot take time off work when they are ill because they fear losing wages.

In cases like this raising incomes helps more effectively than ad-hoc programmes or welfare payments.

Increasingly young people, especially SPM graduates, delay going to college because they need to work to support low-income households. In these cases raising household income eases that constraint and allows them to continue their studies.

More generally it is very difficult for people on low income to take a long-term view when they have to deal with urgent short-term issues of day-to-day living.

If their incomes are higher they can plan and save for the long-term like everyone else. This is more empowering.

If you try to deal with multi-dimensional problems through welfare schemes before raising incomes, you create dependency on welfare because incomes do not rise quickly enough.

Often, you lose benefits on which you depend if your income rises. This creates a perverse incentive to keep your income low to continue receiving the benefits rather than pushing for higher incomes. This is called the benefits trap.

The government announced in Budget 2023 that no one will fall below a threshold of RM2,500. This sets the floor below which nobody should fall.

This is why hard-core poverty can be eliminated this year as planned. It is essentially a universal basic income level which was called an assistive basic income in the BN manifesto in GE15.

For middle-income earners the challenge is to improve their earning potential. This cannot be done in the formal labour market because wages are too low. The progressive wage system will help but not completely.

For middle income earners, allowing flexible working arrangement (FWA) and working from home (WFH) reduces working hours and frees time to earn a secondary income.

Budget 2024 should introduce better incentives to encourage FWA, WFH, freelance and gig-economy jobs, sharing economy platforms and micro-enterprises and even shortening the work week to help people earn a secondary income which should be tax free.

At the moment these are all voluntary and seen as gifts from employers who often see FWA as an extra cost or loss of control over their staff.

So incentives and a change in mindset are required and so are new policies that empower employees and reduce costs to employers.

Since the market is moving to informal work anyway it should be encouraged with less red-tape and better tax treatment.

For those in the high income groups the challenge is to incentivise them to earn more.

There should be no upper limit or ceiling on higher incomes and taxes should be low. This will deliver better opportunities for higher tax revenue from a bigger pie.

The cost of living always increases but it has risen a lot more recently because of unusually high inflation.

Prices are higher and will not come down quickly or at all. So incomes have to rise whatever happens.

As inflation slows prices will rise more slowly and incomes can catch-up and overtake price increases over time. Then the quality of life will improve.

This can happen quite quickly for higher income earners and more slowly for low-income earners but in Budget 2024 everyone needs more support.

The views expressed are those of the writer and do not necessarily reflect those of FMT.