Policy paper: Rethink Malaysia's welfare system, BR1M cash hand-outs

People exchange vouchers for cash Bantuan Rakyat 1Malaysia (BR1M) counter in Kuala Lumpur. — Picture by Saw Siow Feng
People exchange vouchers for cash Bantuan Rakyat 1Malaysia (BR1M) counter in Kuala Lumpur. — Picture by Saw Siow Feng

KUALA LUMPUR, Feb 28 ― Malaysia needs to review its expensive welfare system and the federal government's unsustainable Bantuan Rakyat 1Malaysia (BR1M) cash hand-out schemes, according to a policy paper written by three academics.

The 38-page paper titled “Intervention and Non-intervention: Policy Ideas for a Social Market Economy in Malaysia” said the government's cash transfer scheme under BR1M was both “inadequate and unsustainable” as over 85 per cent of recipients finish spending the cash aid within one month. It cited a news report of Kajidata Research's February 2017 survey on BR1M recipients' spending.

“Cash transfers are clearly insufficient, but to many recipients and people who support this system, it is seen as better than nothing,” said the policy paper launched last week by the Academy of Responsible Management written by Universiti Malaya’s Prof Edmund Terence Gomez, Institute for Leadership and Development Studies’ Noor Amin Ahmad, HELP University’s Prof Geoffrey Williams, with support from German political foundation Konrad Adenauer Stiftung.

It said BR1M was designed as a one-off programme but has now become a permanent scheme in Malaysia, noting however that the hand-out may suppress wages and can act as a wage subsidy in many cases.

The BR1M scheme saw the government initially giving out around RM2 billion worth of one-off RM500 aid to 4.2 million low-income households earning below RM3,000 monthly, but the categories of those receiving assistance were later expanded.

The total number of recipients including individuals in subsequent years have hovered between over 6 million to over 7 million, while the total amount of BR1M allocations have in some years gone up to over RM6 billion. BR1M handouts are now spread out in a year.

The policy paper recommended a full review of the BR1M scheme to assess its full impact and costs.

“Reform of the system will be delicate and sensitive and must not disadvantage those who have become dependent on it. This requires urgent analysis of the scheme and its alternatives,” it said of the BR1M scheme.

The policy paper had also said different types of welfare assistance could be given including vouchers, food stamps, loans or expert sharing on technical skills, suggesting that data on the spending pattern of Malaysians from different income groups could help in aid targeting.

A systemic review

The policy paper said Germany's welfare system is well-designed with universal coverage largely funded by compulsory insurance programmes, contrasting this with Malaysia's welfare system based on ad hoc schemes over the years that are all funded differently with “no apparent systemic thinking on structure, coverage, funding or impact”.

“There needs to be new thinking on welfare in Malaysia on an urgent basis. The current system is partial, inefficient and costly but, most damaging of all, it allows people in desperate need to fall through the gaps in the social safety net,” it said.

The policy paper also said many welfare schemes in Malaysia has created dependency among those receiving aid, while schemes meant to be short-term measures turned into long-term structural policies.

This was due to poor policy design and poor implementation, monitoring and control, it said.

Noting that welfare interventions should not be intended to be permanent, the paper said: “The success of a welfare scheme should be measured by the real reduction in the number of eligible recipients and the total cost, not from the increased number of recipients or increased amount of disbursement.”

“In short, the ultimate objective of the scheme should be to make sure that more recipients become self-reliant rather than continue in dependency,” it said.

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