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



20 comments:

Eric How, said...

Right before we talk about pay rise. Can we secure the job on recent factory close down in Penang?

Salvatore_Dali said...

eric,

i have talked about job losses n severance pay... this is a separate issue altogether..

on job losses currently, nothing much we can do...

easystar said...

Dali,

To pay tax in Malaysia, one needs to earn around RM3000 per month. Those will need to pay SocSo so that may leave a net of around RM2700. This is not really a lot of money in KL/Penang (which are about the few places you get that kind of salary anyway). They also pay GST. I think the tax rate in Malaysia is low enough and I see no reason to extend the tax net. Marginal tax rate of 28% for high earner (>RM400k I think) is slightly high but the effective rate is likely to be around low 20% which I think is a fair rate.

I think the fundamental issue in Malaysia comes back to be that certain people should be shieled from reality because of their birth right. With that in mind, and the political reality being so, there isn't plenty of hope for huge chance.

There probably needs to be enough pain and enough insecurity before people will say, OK, now, it is do or die, so let's do it together.

With palm oil, crude and logs still flowing..that day will come, but not anytime soon.

No Regret said...

Before everything u suggest can be implemented, you need to curb corruption first.
Singapore might not be a expensive place if you factor in the hidden cost in Malaysia...

clk said...

Our country over the last 20 yrs was obsessed with keeping cost down. The influx of foreign low cost labour was a result of it.

Today we are paying the price of this as the locals salary is benchmarked to the bottom. We should instead move up the chain but the greedy low valued added capitalist ensure we remain on the bottom of the chain. Both the hard and soft infrastructure isn't helping us as well.

I don't see how we are going to dig ourselves out of this with the current economic policies we have.

Soon Hui said...

As much as I like your points, I don't think that this is even remotely feasible under current policy. You see, we have been always positioning ourselves as a cheap labor place, and this is how government attracts foreign investors in the absence of brain powers ( like Israel). By raising the salaries of those professional the foreign investors would rather just quit our country and go to other places. It's a no-no.

China said...

I have always maintain that it is a myth that Malaysians shunned the so-called 3D works because these works are supposedly Dirty, Dangerous and Demeaning; yet just across the causeway, you can find Malaysian Chinese doing all these 3D works. Why? It is a matter of wage and supply of labour, basic economic theory proven in real life. Even in developed countries, these 3D works are done by orang putih using advance protective clothing and equipment. In order to move up the economic chain, the low costs model must be discarded in favour of the high income model.

see said...

Education is the key word here. All the hooha about what language to use is missing the point. We need good educators like teachers and headmasters like yesteryears. I agree with you about subsidies becos this country seems to be a subsidy country. Much of the budget is funded by oil revenues. Btw I suspect more people should be taxable if you take into account their income from side businesses from the informal economy. Any idea how large is the informal economy here?

Even if you have educated citizens does not guarantee we are gonna be developed country soon. Countries like Philippines is good example, graduates have to go abroad to become maids. At the rate we going I fear we may soon have to work as maids in China one day hehehe.

Richard Cranium said...

Cyberjaya/MSC is a move in the right direction?

You gotta be kidding, right?

Its one humongous property play.

Can you name one Cyberjaya/MSC pure-play that is of international standard? My business is not in MSC because I detest the rental-mentality that's prevalent in MDEC.

And now we have MSC locations sprouting all over the place, like Bandar Utama.

richard said...

I tend to agree with clk and totally don agree with Soon Hui.
Sorry.

Salvatore_Dali said...

easystar,
while low pay may be low relative to cost of living, its is still unconscionable for only 10% of working population to shoulder the whole personal tax burden

no regret,
you are right, it takes a whole new way to govern with transparency and merit... the more we try to maintain the status quo and reserve jobs, we cannot be open enough to absorb the best and brightest

clk,
exactly my point, if we go on as we are, ten yrs from now we will still be doing the same stuff, and graduates pay will still be RM2,500... some may argue that thats ok as that will keep cost of living low... is misguided, being able to live within yr means with low pay means yr choices are limited, ever try to go for a holiday overseas...e.g. do any of us go to Singapore anymore???... soon we may not be able to afford going to Thailand as well...

Soon Hui,
sorry to say, that kind of thinking is normal, but it is precisely that kind of thinking that locks us in our box... you dont have to worry about FDI moving away, as long as you make the right changes to education and corruption and transparency and merit... if we fear losing the current low end jobs, then we deservedly will be low end for ever

richard,
we can bitch about MSC, yes i also think msc only achieved 5% of what it sets out to do, but the thinking behind it is good, i am applauding the move not the execution... sometimes we malaysians can be too cynical with everything, we should at least try to see some bright spots n learn and encourage one another to move in the right direction, just bitching about it in coffeee shops will just tie us down, not make us better... if u resigned to the lost cause, you have lost... strive for betterment... if everyone think like you, there will be no Pakatan, there will be no Malaysia Today, its uphill, at times its unforgiving or even futile, but still we must strive on as this is the only country we have matey..

value investing in malaysia said...

Agree on "we definitely need to change the way we think and work".

soon hui, maybe i m wrong, but we cannot position msia as cheap labor place anymore. we need to reposition msia as a high valueadded country like Spore.
Change We Need, Think differently, we cannot always stay the old way. we are being left further behind by Spore already. Its time to change!

easystar said...

Hi Dali,

I am obviously no fan of big government but considering that in the US, in 2007 top 5% of the population pays >50% of the tax

http://en.wikipedia.org/wiki/Income_tax_in_the_United_States

I think the situation in Malaysia is actually not that much different (10% pays 100%. In US, it might well be 10% pays 90% of the taxes). Further, in US, the highiest bracket hits 35% + state taxes. Malaysian 28% is actually not that bad.

Further, in US/UK, the lower income group not only pays zero tax, but they got rebate (meaning, -ve tax rate, worse than paying no tax).

And hey...rather than asking for higher salary, we don't we get our grads to start biz/create their own job which pays (via profit) as much value as they can deliver.

chanyip said...

i couldn't agree more with dali. our purchasing power is getting lesser and lesser by the day. when inflation happens, why there's no proportional increase in graduates' salaries. in that case, how are we going to survive when a bowl of mee have gone from rm2.00 to rm4.00 while earning the same old salary as last time? think about it, keeping cost down as a way of attracting foreigners to invest is not going to last long. by having cost as the only advantage, soon we will be overtaken by vietnam,india, china and etc, assuming that we have not been taken over. what we need is to invest in education, churning out talents that makes investors want to come into our country, and students like me don't have to go overseas in order to seek a better future. im studying in National University of Singapore now, and the thing that drove me away from Malaysia is the difficulty to obtain a comfortable live. I wish I can just stay in Msia and earning Singapore's pay

K H said...

Hi Easystar,

"Further, in US/UK, the lower income group not only pays zero tax, but they got rebate (meaning, -ve tax rate, worse than paying no tax)."

Why is paying -ve tax rate worse than paying no tax for the lower income group? I don't get it.

"rather than asking for higher salary, we don't we get our grads to start biz/create their own job which pays (via profit) as much value as they can deliver"

- It is not a given that all start-ups are profitable or successful. It is darn hard to start up your own business in this very competitive world, let alone make profits, else everyone would have done it. Most of my friends have to close shop within 6 months when they venture out of their own.

Winston Siew said...

One of the reasons why local pay is low is because of our high corporate tax compare to our neighboring countries like Singapore and Hong Kong.

Corporate taxes must be low no matter what. If not, profit will be exported to countries with low corporate taxes.

Once the profit is exported, the local company no longer making money and this will forever depress the local pay.

Same goes for our high import duties.

AnakMelaka said...

Hi Dali,

10 years ago, as a fresh grad my starting salary was RM 2k with an MSC company. (Kueh Teoh was at RM 2.50)

Today, this MSC company is hiring fresh grad at RM 1.8k!

10 years ago, starting salary for fresh grad at Maybank was around RM 1.8k ... guess what's today starting salary at Maybank? :-)

Yes, I'm moving out of Malaysia.

solomon said...

Yes, we all need a sustainable higher salaries. But the corporation needs to make higher and higher profit each year to provide this.

I guess our workforce productivity need to be greatly improved. I understand from the newspaper our country govt sector had one of the lowest govt servant per citizen ratio in the world. How we are addressing this?

To ensure competitiveness, we need to open up our education systems and R&D. Emphasize needs to be paid on multi languages, maths and sciences. More incentives for R&D in the countries, we need intellectual patterns in various fields.

Our rich and famous are migrating because they foresee their kids might be deprieve of these....aren't those in charge deaf to this? How many migrate because of biz and retirement??

Lastly, political stability. When Mahathir embraces abdullah at last nite functions, I believe this will hint on a better political landscape. Well, personally Dali and I might not like him, but good leadership may be good for at least for now.

Born2Reign said...

Why should we even be paying taxes? Malaysia being an oil producing country should have sufficient reserves to pay for all the govt operating expenses, based on the profit reserves made during the high-price days.

The fact that all states must sell their petroleum to Petronas, and Petronas is owned by 6 secret individuals (much like the Fed) means that we have been "communism-ised". The question is "Can govt serpents maximise available resources?"

Pertaining to higher salaries, it is really about purchasing power more than value. Is the fresh grad of today better than of yesterday? You have even lamented abt the attitude of local job-seekers nowadays. So why should I pay for a fresh grad who thinks that the world owes them a livng?

“’Between 40 and 45 percent of the world’s wealth has been destroyed in little less than a year and a half,’” Schwarzman told an audience at the Japan Society. ‘This is absolutely unprecedented in our lifetime.’” ~Stephen Schwarzman, Blackstone Group

Deepcaster’s contention is simple: the “Wealth” that was destroyed was not Real Wealth, but rather “Paper/Electronic Wealth” (“Paper” Wealth hereafter); otherwise, it could not so easily have been destroyed.
http://www.financialsense.com/fsu/editorials/deepcaster/2009/0327.html

Free Enterprise market:
NO TAXES, SOUND money (no currency), resources belongs to the people

Communism:
Taxes (pay rent to the state coz resources belong to the state)
Currency (no Sound money)
Resources belong to the state

So which country is really living in a free market? None really.

We are all communists. And we expect the productive to be penalised and the lazy bums to laze in the sun.

We may have higher salaries, but will we have higher purchasing power?

ahmad shahrul said...

Dear all,

I'll summarise the whole thing in a very simple statement - the Income Tax Act 1967 (ITA) is 42 YEARS OLD with revisions and updates done mainly on ad hoc basis. Can you imagine the way business is done 42 years ago compared with how it is today whilst the tax matters are still based on an Act that was drawn up 42 years ago?

The country could really do with a comprehensive study of this Act. A revamp of this Act is necessary to ensure justice is served to every taxpayer and the nation can prosper with an excellent and up to date tax legislations.