Govt should start endowment fund for the needy - Economists

SHAH ALAM - Subsidies are just one of the short-term solutions to help the needy group, but the long term solution should include creating an endowment fund, experts say.

An economist at Universiti Tun Abdul Razak (Unirazak), Professor Emeritus Dr Barjoyai Bardai said the subsidy mechanism was not viable in the long-term as it was only an interim solution to help the struggling group due to the increase of prices of goods.

“Malaysia needs to come up with other mechanisms such as introducing subsidy schemes for the needy group that should not be addressed in the normal budget scheme, but a special one.

“We are talking about the social protection system, we should start creating an endowment fund for the needy group,” he told Sinar Daily.

Barjoyai said the needy group in Malaysia has now grown in numbers which exceeded over 20 per cent of the households.

He added that the number was equivalent to three million households and the country currently has over 15 million households altogether.

“I think we need to think of the remaining eight million households that need help, that is 50 per cent of the households and if we could create an endowment fund, it will grow in size in terms of capital.

“(And) what we will do is we use the income from the endowment fund as subsidy for groups who are really in need of it.

Recently, Finance Minister Datuk Seri Zafrul Abdul Aziz warned that the existing subsidy mechanism which provides subsidies to Malaysians across the board was not sustainable.

In light of the statement, Barjoyai said the next best method to help the low-income group was for the government to provide food stamps instead.

He said food expenses took up over 40 per cent of the monthly budget and by helping the people cope with the costs of food, they would be able to live a better life.

This, he said could be done by as simple as setting up booths in front of supermarkets and hypermarkets for those who were interested to get food stamps.

“They would need to register and a database would be created for that purpose. It could also be done at the wet market in both villages and towns so that those who need subsidy could get it,” he said.

Commenting on former prime minister Tun Dr Mahathir Mohamad’s remarks on using the Treasury reserves for subsidies to tackle inflation, Barjoyai said the savings should not be spent lavishly.

The money, he said should go into the endowment fund so that it could be preserved so that in the long-run, only the income from the fund would be spent.

“The amount would then grow just like what they did in Norway. In just 20 years, it became trillions of dollars,” he said.

He added that the idea of taking money from the Treasury reserves was irrelevant as subsidies were just a short-term effort to help the people and will distort the market.

Meanwhile, Universiti Putra Malaysia (UPM) Putra Business School economic analyst Associate Professor Dr Ahmed Razman Abdul Latiff said he was of the view that the government was right to acknowledge that the current subsidies system was unsustainable.

He said among the factors were that the targeted annual subsidies of RM33 billion has skyrocketed to more than RM77 billion, the annual federal commitment has also increased to RM43.1 billion this year, which was a 50 per cent increase since the last five years and the existing financial obligation such as government servants emolument was around RM86.51 billion this year.

“Therefore, there is a need to relook at the source of revenue or to figure out how to sustain the subsidies if the government decided not to change it into targeted subsidies,” he said when contacted.

Razman said there were alternatives to address the subsidies issue without depending too much on Petronas' annual dividend or tap into the government's foreign reserves.

“The government could introduce targeted subsidies to the B40 groups and other targeted groups.

“At the same time, these groups need to receive monthly assistance in a form of e-vouchers because once targeted subsidies are introduced, the prices of other products and services will continue to increase mainly due to higher fuel prices,” he said.

The e-voucher, he said, was an initiative that needed to be implemented with a netting system.

“At the beginning of the year, before the government obtained revenue through income and corporate taxes, it might have discovered that there was not enough revenue, so they have to take on a new debt.

“Through the netting system, the government could give e-vouchers to recipients and they will be able to exchange the e-vouchers for goods and services provided by the traders and when the traders want to claim these e-vouchers with the government, the government could deduct the amount from the corporate tax that the trader has to pay,” he said.

He added that if netting was used, the government did not have to take out a loan at the beginning of the year and did not need to pay interest.

Therefore, he said, there was no need to use cash in the first place.