Friday, March 27, 2009
Want Higher Salaries, Don't We All
How do you like our graduates being paid starting salaries of RM4,000 - RM5,000 per month? That is quite achievable but we need to do some things first.
What is galling is that its 2009 and we still pay fresh graduates around RM2,500 a month. Geez, I still remember its 1995 and we were paying graduates the same rate!!! What went wrong?
The fact is only about 10% of the working public pay any taxes in Malaysia. That figure should surprise you. In fact all civil servants should be a lot nicer to those of us who pay taxes because we really pay their salaries.Corporate taxes contributes about 21% of total federal government revenue while personal income taxes make up only 9%. Let's focus on personal tax first. If personal income tax only make up 9% of federal government revenue, there is little reason why we are not more competitive. In fact the high rates should be lowered to 20% max and the lower tax threshold be extended to include at least a wider base of tax payers. Seriously, at least 25% of working public should be paying taxes, not just 10%.
Corporate taxes should stay the way it is until we liberalise other areas which the country subsidises indirectly. Companies, including foreign companies are still willing to pay Malaysia's higher rates because the country subsidises a lot in the form of fuel subsidy and electricity subsidy. Take that along with a much lower land cost, and throw in the cheap foreign labour to keep labour cost low - that makes Malaysia a effectively cheap place to operate.
Our infrastructure is comparatively good, even the logistics are pretty decent. We should revamp our tax codes because we need a new way of thinking and new way to position Malaysia's future. Going down this same road will only keep the low value industries in our midst. It will not encourage our industries to move up the value chain.
If you were thinking of investing an operation in a more expensive country, say Singapore, you would have to make sure that it is of very high value add to compensate for the higher labour and land cost. Of course it is not as simple as changing the tax code. We will need to support the shift with ably educated workforce that matches the high value add input required. We also need proper strategy with regards to foreign workers. They keep our labour cost low and subsequently dragging overall labour cost lower as well. We need to be vigilant with the number that we allow in, and monitor them properly. We think we have 2m, but there are possibly double that when you include illegals - 4m almost makes up 25% of our total workforce. Have a plan to limit at 2m and make sure that sticks. Don't just penalise the workers, give out stiffer penalties on employers that employ illegals, and enforce it well. Then have a plan to gradually lower that to 1.5m by 2011 and to 1m by 2013. Maids should not be counted in that group as they help to liberalise our workforce.
The country subsidises too many things. Controlled food items are OK as its for the public. You can still keep subsidy in oil and gas for the general public, but not for corporates. Have a plan to phase out subsidy in oil, gas and electricity for all companies - e.g.reduce subsidy by 1/3 by 2011, reduce by another 1/3 by 2014 and total elimination by 2017. That way, foreign investment will be able to plan properly. The higher operating cost for companies will be partly compensated by lowering corporate tax rates, but that will change the kind of FDI we attract, from being low cost to higher value add types. We have a high percentage of our workforce that are graduates, its just that we keep seeing many leaking out to work in other higher paying countries. We do not have sufficient high paying industries to keep them here.
There will be some fallout so the plans have to be gradual. At the same time, we have increase the incentives to lure in higher value added industries. We also need to restructure and trim down our civil service substantially, by at least 30% over the next 5 years. You may ask where are the new jobs going to come from, it will have to be coordinated with a proper masterplan, creating a top-down supply chain industry cluster that encourages the entire industry to congregate at certain places.
Penang and northern parts of the country should refashion their strategy to only encourage higher value add technology industries - at the same time supporting that with more specialised technology based universities to churn out more relevant workforce. Certain other areas could be leveraged to form clusters for oil & gas, higher education campuses, etc...
Then you will get higher salaries all around. Yes, cost of living will rise as well, but that is part and parcel of a maturing economy. You cannot have grade A salaries working in New York, HK or Singapore without corresponding rise in cost of living. At the same time, land cost and properties will also rise. If we argue around maintaining the status quo, ten years from now, we will still be living the same way and supporting the same industries.
We need big thinkers, as much as I dislike Mahathir, his Cyberjaya/MSC is a move in the right direction - we just need to execute better, bring in globally qualified lecturers for specialised higher education to churn out properly qualified staff to support the vision. The port thing down south was good as well, again we need to execute better. The Proton city was a good idea but Proton did not move up the value chain and we still suffer from too much cronyism and who we know to get things done.
When we have higher salaries, other capable people will want to work in Malaysia also as they can get decent salaries. As things stand now, most of the brain drain is one way, we go to HK, Singapore etc... to get double or triple our pay. Better industries, better salaries, better workforce. Want better salaries, we desperately need a huge revamp in the way we think and govern.
p/s photos: Erika Sawajiri