By Dr Mohd Afzanizam Abdul Rashid, Chief Economist, Bank Islam Malaysia Berhad
The rise in the number of Covid-19 cases suggest that the economic recovery is expected to be bumpy. Some of the jurisdiction such as India is facing the risks of a collapse in their healthcare sector given that the new cases had tops more than three hundred thousand dailies.
Japan prefecture such as Tokyo and Osaka have also been requesting for a lockdown in order to curb the virus spread. But the economic data points so far have been quite forthcoming and this could also irritate the general public especially those who are sceptics with the economic statistics. For instance, the latest print for Malaysia’s export growth came in at 31 percent during the month of March.
The unemployment rate has skidded slightly to 4.8 percent in February from 4.9 percent in January. Internationally, the first quarter GDP growth for China came in higher at 18.3 percent and similarly, the US and Singapore have respectively recorded 0.4 percent and 0.2 year-on-year growth during the first three months of this year.
Be that as it may, the reality remains a challenge for the most of us. In particular, those who are still out of the jobs while businesses are struggling to adhere with the strict Standard Operating Procedures (SOPs). It is a costly affair as their revenue stream could be lackluster amidst rising operating cost.
The transition to a new employment especially to a different sector would never been an easy feat. This is especially true when the pay scale can be different for each industries. For example, the median salary for the manufacturing sector in the year 2019 stood at RM1,967 per month while those in the agriculture was receiving RM1,531 per month.
Not to mention the new skillset that they must acquire and therefore, chances that they might settle for a lower pay is highly likely. In that sense, the economic scaring is real and therefore, targeted assistance especially in areas relating to training and reskilling is extremely important to ensure a better success rate for the individual to migrate to a different field.
In that regards, framing the present economic condition is crucial in order to appreciate the gravity of the situation. First, we have to acknowledge the fact that the economic recovery is going to be uneven and risks of widening in the income and wealth inequality are expected to get higher.
Second, the technological advancement is an unstoppable force, leading to further inequality between the rural and urban areas in respect to education in particular. Given that, setting the right priority is paramount to ensure that the vulnerable groups will continue to be taken care of while others can prosper and contribute meaningfully to the society.
A typical way of looking at things, the government need to tax more especially to those who are wealthy. The latest suggestion by the US administration to impose 39.6 percent of capital gain tax is a good example that the wealthy is likely to be punished in the name of narrowing the income inequality.
While this can be acceptable since these are the rich who have made substantial gains in their investments, the lingering questions would be the effectiveness. What if these super rich would move their money away from the country?
Then there would be less money to be taxed and the budget gap could never be addressed holistically. Perhaps exploring ways to make the riches more receptive to part their money for a good cause could be seen as an effective way for redistributing the wealth. After all, it is not a sin to be rich as long as the wealth is acquired through the hard work and legitimate means.
Within the realm of Islamic economy, Cash Waqf has gained traction of late. The Budget 2020 has specifically indicated that the donors of Cash Waqf would be allowed for tax deduction.
There are also unit trusts in the market that promotes Cash Waqf from the investment returns as this would allow investors to part some of their returns to be given to Waqf institutions. Imagine if such endeavor can be galvanised in a big way. Certainly it could help to reduce the government’s financial burden especially in areas relating to socioeconomics. So it is time to be creative.