Economists divided over benefits of implementing belt-tightening plan involving civil servants

PETALING JAYA: Instituting austerity measures like reducing civil servants’ emoluments should be the government’s last resort, although the option should remain on the table.

Economics professor Dr Yeah Kim Leng warned that taking such an action would ultimately reduce spending power among the group, subsequently affecting efforts to stimulate the market and help the economy to recover.

However, the Sunway University Business School academician said it would be prudent for the government to re-examine its budget to ensure its spending is reduced in proportion to the decline in revenue due to the Covid-19 pandemic.

“If they are not able to find alternative income sources, they should seriously consider cutting some of the operating budget, including salaries,” he told theSun yesterday.

The government typically spends over 25% of its overall annual budget expenditure, amounting to tens of billions of ringgit, on emoluments for the civil service, which currently has over 1.7 million personnel.

Yeah said cutting down on civil servants’ wages and benefits would help to strengthen the government’s fiscal balance sheet, and as such, should be considered.

“If all else fails, then taking a pay cut is something that should be part of the strategy,” he said, adding similar measures should also be considered by government-linked companies.

Apart from progressive salary cuts based on the wages of civil servants, Yeah said the government could also temporarily suspend increment for higher-income earners.

However, he stressed that before resorting to austerity measures, the government should redeploy and reallocate its resources from non-essential ministries and agencies, to ensure more effective spending.

Several countries have already mounted austerity campaigns amid the economic threat of the coronavirus pandemic.

Among others, South Korean senior civil service officials have agreed to slash their salaries by 30%, while Kenya’s military and civil servants will also be taking pay cuts.

Previously, various other nations have also gone on a similar campaign to prevent a debt crisis, implementing measures like reducing salaries, trimming the force, cutting down on subsidies and increasing taxes.

Malaysian Financial Planning Council deputy president Dr Desmond Chong said any decision to institute austerity measures should only be considered after taking into account the full impact of the stimulus packages.

He said at present, the impact of these packages has yet to be seen in full, hence it would be difficult to gauge its effectiveness.

“It’s hard to recommend pay cuts for public servants when we have not seen the final impact. Maybe after that, we can consider whether to go on an austerity drive.”

Meanwhile, Amalgamated National Union of Local Authorities Employees president Datuk Azih Muda said any form of pay cut for civil servants should only be done on a voluntary basis.

“The key is not to force everyone to take a pay cut. Those who can afford it should be able to volunteer for it,” he said.

Azih also dismissed suggestions for higher-income earners to take a bigger pay cut, claiming most in the force now only have a take-home pay of less than 40% of their salaries, after deducting their commitments.

“No matter how much we earn, our liability is about the same. Those with higher income will certainly have bigger commitments. In the end, our take-home pay is still small.”

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Economists divided over benefits of implementing belt-tightening plan involving civil servants