Extraordinarily, the Economy Minister has been holding press conference for every consumer price index release in the past few months. Extraordinary, because in the past, CPI releases were treated with silence by the government, and from time to time, cited in largely unread government press statements. But the new Minister, Rafizi Ramli, is focused on cost of living issues. He sees CPI statistics as a way to regularly talk about it.
He is not alone in focusing on living costs. Information Minister, Fahmi Fadzil in an interview recently said:
“The people don’t really care about the slogan, they care about the cost of living, prices of goods and internet access. Therefore, it is essential for every minister and ministry to act immediately to resolve issues of concern to the people.” [Fahmi: ‘Govt to solve people’s issues through Malaysia Madani concept’. Bernama. New Straits Times. January 25 2023]
A very, very short history of living costs politics
Component parties of Pakatan Harapan (and previously Pakatan Rakyat) have a long history of stressing on living costs politics. When energy prices were high in the late 2000s, DAP, Pas and PKR were pressing on the cost-of-living buttons furiously, and that played well to popular anger at that time.
Furthermore, the focus on living costs is a way to shift attention away from race and religion, towards more welfare-based issues. That shift is something to be welcomed, definitely.
Regression in policy
But as I have written earlier, while living costs deserve attention, the the politics of living costs is counterproductive in many ways. Such politics is the reason why policy progress Malaysia made in the past 10-15 years with respect to welfare policy has been partially reversed. Specifically, I am referring to the shift from subsidies to cash transfers. Cash transfers in many ways superior to subsidies in terms of welfare enhancing. Therefore, blanket subsidies and cash transfers are meant to be competing policies.
Yet, now, we have both and the government for the past 5 years have taken the two as complementary. The confused policy mix is proving to be expansive. And it does not help that the government is scared of new taxes, and prefer hard-to-implement-but-low/unstable-revenue taxes to easier-and-high/stable-revenue ones, which causes a severe fiscal constraint.
Rafizi, who previously was a strong believer in blanket petrol subsidies, appears to have walked back, perhaps after realizing the state of government finance, He, along with Prime Minister-Finance Minister Anwar Ibrahim, are now talking about targeted subsidies instead, which has been discussed since at least 2019, not long after blanket subsidies were reintroduced. But having both targeted subsidies and cash transfers are still a confused policy mix. The ideal would be to move to cash transfers fully.
Politics of living costs almost always means large subsidies
The politics of living costs is counterproductive because, with its logical framework, the easiest way to address it is through subsidies and price controls. Other ways—wage hikes for one, or competition regulations—are much harder to implement and takes longer to be realized. The thing with subsidies is (in some ways cash transfers too, but at least cash transfers is much, much more efficient in enhancing welfare while it can always be clawed back via taxes if the wrong persons received it), it tends to take resources away from other things, like funding healthcare, investing and maintenance infrastructure or building defense capabilities in a region has been taking peace too much for granted.
You cannot solve these structural long-term things, if politics of living costs that is always in the now, is the ultimate priority.
The language of austerity
Since such politics takes resources away from many things, it sets the tone of belt-tightening: pay cuts, no pay, RM1.5 trillion government debt (and liabilities), etc. When there is so little left for anything else, usually, a lot of people would be scared and pull back what they could, except subsidies.
Anwar Ibrahim, at a forum in Jakarta, quipped that Malaysia was no longer the country of the 1990s in response to a request by an Indonesia luminary for more Malaysian scholarship for Indonesian students.
Rafizi, just this week, said:
“It is like an overweight person. You know your ideal weight and you constantly remind yourself that you are getting worse,” he said at a forum titled ‘Resetting the Malaysian economy’ organised by Parliament.
“The solution is simple. You need to eat less. If you want to eat a lot, you need to run more. Doctors, gyms will tell you that. Most struggle despite the diagnosis.
“That’s where we are as a country. With the current fiscal trajectory, things will get worse. It takes a lot of courage, political will and cohesion with all stakeholders (to carry out changes).”
[Fixing economy like fat person trying to lose weight, says Rafizi. Joel Shasitiran. FMT. January 27 2023]
Fat. Diet. Those are words one typically associates with austerity. We do not have austerity, but using this kind of language, it would impress many that there is one.
And the source of this language, and the wider fiscal problem the government faces is the politics of living costs.
This second Pakatan Harapan government appears to be repeating some of the mistakes of the first Pakatan Harapan government: too much focus on government financial burden that it was accused of running austerity policies, despite the fact, clearly, there was no austerity at play.
