What Else Should We Expect From Budget 2021?

There has been a lot of talk over the upcoming Budget 2021, but the government needs to focus on keeping Malaysians employed and bridge the income inequality gap that has significantly widened during the pandemic, says a consultant.

While unemployment rates have eased in the economic recovery phase, job growth continues to slow down amidst economic uncertainties, PwC Malaysia director Lim Phing Phing told iMoney.

Regardless of how the situation unfolds, Budget 2021 must address urgent issues brought about by the pandemic. In recent months, news of pay cuts, salary freeze, and retrenchments are becoming so common, so much so that many employees are more concerned than ever about protecting their jobs and livelihood.

A survey by a recruitment agency recently showed that employees picked job security as the most important factor when looking for jobs in this new normal. Unemployment rates earlier this year climbed to the highest ever in the last 20 years.

Can the government deliver the right financial formula in Budget 2021 to help Malaysians where it matters most – keeping their jobs and protecting livelihoods?

Keep Malaysians employed

“More strategic initiatives are needed,” PwC Malaysia’s Lim shared her insights on how the upcoming budget can provide more jobs.

“Such initiatives should be more targeted and focused on creating viable employability in industries such as renewable energy, healthcare, retail and ICT as these are the key sectors,” she highlighted that these are growth areas in the next ten years in line with Industry 4.0 needs.

Lim points out that upskilling digital skills of the Malaysian workforce should be a priority as many Malaysians who were not equipped with these skills suddenly found themselves at a disadvantage in the current job market.

“While the government has been steering digital upskilling efforts in the right direction, balancing the costs and benefits of workforce development is a delicate juggling act.” – PwC Malaysia director Lim Phing Phing

However, Lim cautions that the cost for retraining and digital upskilling will continue to rise substantially in the years to come.

As the government is already planning to go deeper into debt to continue to help Malaysians recover from the pandemic, Lim suggest that last year’s budget could hold the answer.

“The government introduced the concept of Digital Social Responsibility (DSR) in Budget 2020 in which contributions by businesses towards DSR activities that contribute to digital economic development and improve the digital skills of the workforce will be given tax deduction.”

Lim’s suggestion to look at areas in Budget 2020 that have proven to be useful, especially when it comes to creating jobs is also echoed by local think tank organisation Research for Social Advancement (REFSA)

Focus on schemes aimed at youth and fresh graduates

Among the key measures REFSA put forward is to call for the government to continue with the Malaysia@Work programme introduced in Budget 2020, especially the schemes aimed at youth and fresh graduates.

Youth unemployment has been rising, reaching a double-digit figure by last year. This year, it climbed to 13.9% in July after the MCO was lifted and remains at 13.7% in August. In real numbers, that means over 700,000 Malaysians are jobless.

Addressing this growing problem is even more urgent, given the impact of the pandemic.

Resume the Malaysia@Work scheme provisions for youth employment – REFSA

According to REFSA Visiting Fellow Hafiz Noor Shams, the government still has the financial ability to continue targeted spending, especially on strengthening the workforce.

“The government has the fiscal space to support jobs and livelihoods in the short term.”

In a full policy brief entitled “Budget 2021: Ushering in the New Economic Paradigm”, REFSA has outlined why it recommends resuming the Malaysia@Work scheme.

“The programme works by encouraging private firms to create new jobs for fresh graduates by cheapening hiring costs and raising wages for fresh graduates toward living wages.

“The programme should run for five years, targeting to create 132,000 new jobs for graduates. Given the estimated number of jobs, the programme would likely cost the government approximately RM1.5 billion over five years, or RM304 million yearly on average, without accounting for administrative costs.

“The Employees Provident Fund (EPF) had been preparing to launch the programme in the first half of 2020, therefore, it should be able to get it off the ground relatively quickly.”

“Although the economic conditions are dire, they also afford a unique opportunity, in the form of additional fiscal space, to support jobs and income in the short term, and to kickstart the transition to a greener, more sustainable and more equitable economy in the longer term,” the report concluded.

On the other hand, keeping Malaysians employed also needs businesses to stay afloat to provide jobs.

Provide 1-to-1 tax credits to SMEs

The Department of Statistics Malaysia found that over 80% of businesses in Malaysia required financial assistance or subsidies to manage the effects of Covid-19. Budget 2021 will need to provide ways to keep businesses afloat and continue to create jobs to help Malaysians keep their livelihood.

“There are a couple of areas where help and support from the government can make a meaningful impact to the SMEs,” PwC Malaysia Entrepreneurial and Private Business Lead Partner, Fung Mei Lin points out where government assistance is needed.

“Provide 1-to-1 tax credits to SMEs,” Fung said that previously these tax incentives were restricted to manufacturers that have invested in technology like purchasing of Point-Of-Sale systems or IT hardware to drive their business.

“Most SMEs may not have profits this year or even next year to utilise the tax credits, therefore the tax credits should not have an expiry date to allow the SMEs time to continue investing and growing in this challenging environment.” – PwC Malaysia Partner, Fung Mei Lin

Fung also suggest the government offer double deduction for companies that invest in going digital. “Like for SMEs that adopt, say, cloud-based solutions for collaboration and efficiency,” she points out that this can help SMEs in their cash outflow as well as encourage adoption of new technology.

Adding her insights about how Budget 2021 can help SMEs, PwC’s Lim also suggests that the government provide tax incentives for companies to invest in programmes for reskilling and upskilling, especially for areas with high unemployment like tourism, hospitality and services industries.

“Allocations can perhaps be made for programmes that facilitate reskilling and upskilling of the hospitality workforce during this downtime,” Lim points out that this will help them stay relevant post-pandemic.

“Additionally, the government can consider having such expenses incurred on training programmes for the hospitality workforce to be claimed as double tax deduction.”

When Budget 2021 is finally tabled, the government will urgently need to address how to keep Malaysians employed and create more jobs despite the challenging economic outlook ahead.

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