Abstract

The social protection system in Malaysia aims to provide financial and social support to individuals and households facing various risks and vulnerabilities. It consists of several components, including social assistance programmes, social insurance schemes, and labor market interventions. However, the system has been criticised for gaps and inequalities, leading to calls for comprehensive reform.

This compelling article by the author emphasises the urgent need for a comprehensive reform of Malaysia’s social protection system. This article highlights the need for a mindset shift towards solidarity, responsibility, and social insurance. By reframing social assistance as a supplement to hard work, recognising that everyone is at risk, and moving from subsidies to sustainable protection systems, Malaysia can create a more inclusive and resilient social protection framework that eventually can ensure the well-being of all Malaysians, foster economic stability, and promote a sense of solidarity among members of the community.

In a post-COVID world, where fiscal positions of governments around the world are still stretched in the aftermath of the crisis, pushing for fiscally demanding policies such as further assistance may seem like an uphill battle. However, it is precisely during this current window of recovery, economic rebuilding, and heightened reinvestments, that the focus on strengthening Malaysia’s social protection system becomes important.

We have observed how Malaysia’s existing social security schemes help households stay afloat during the crisis, such as the Social Security Organization (SOCSO)’s employment insurance scheme, as well as anti-poverty cash transfer programmes under the Department of Social Welfare (JKM). Though not ideal, even the Employees Provident Fund (EPF)’s withdrawal scheme was at least available during the crisis for its contributors.

However, the fact that many still struggled tremendously – to the point of raising “white flags” – serves as a grave reminder of how many Malaysians are still left out from Malaysia’s social protection net. They tend to be the neglected “missing middle” – a term coined by Khazanah Research Institute in its seminal 2021 report titled ‘Building Resilience’ – referring to a relatively large group of Malaysians who are neither in the position to benefit from SOCSO or EPF because they do not work in the formal sector, nor eligible to benefit from cash assistance from the government because they are not considered “poor” enough by national standards.

The national definition of being “poor” itself was also only recently revised. For years prior to 2019, the country has prided itself for having successfully reduce absolute poverty rates to almost 0%, until policy makers finally yielded to calls to raise the Poverty Line Index (PLI) – the income in which a household is considered poor in Malaysia – from RM980 per month to RM2,208 per month. Overnight, almost nine in every 100 Malaysian households were found to be living in poverty, defined as households that are not able to meet their basic living needs.

The situation is particularly acute for children and the elderly; before the pandemic, six in every 100 Malaysian households are in poverty but if we consider only households with children and only households with elderlies, poverty befalls a higher proportion of them – at about nine and twelve in every 100 households, respectively. Even at this (high) level of analysis, it is apparent that children and elderly tend to put additional burden on household finances. Therefore, excluding the elderly and the children from specific social protection provisions worsens the situation.

The efficacy of anti-poverty programmes in Malaysia have also been found to barely move the needle. Typically, countries with solid social protection systems will see anything between a 0.15 and a 2.00-point improvement in the Gini index – a common measure of inequality – after accounting for government assistance. In contrast, Malaysia’s Gini index barely improves after receiving cash transfers, at around 0.41.

The three issues illustrated above – namely the missing middle, the higher incidence of poverty among households with elders and children, and the efficacy of social security programmes – only represent a handful of many other symptoms that highlight the gaps within Malaysia’s social protection system. What is clear is that improvements are needed urgently, before the temporal window where Malaysia as an ‘ageing’ nation expires, and Malaysia becomes a structurally ‘aged’ nation.

Strengthening the social protection system in Malaysia will entail highly debated policies such as an income protection floor for all Malaysians (or at least all low- to middle-income Malaysians), children’s benefits, and the universal-versus-targeted methods in delivering social assistance.

On the part of the government, these highly debated policies will require a significant shift in the way socioeconomic policy are crafted and delivered – beginning with a shift from looking at social protection as merely a redistributive role by the government, towards looking at it as an ‘investment’. Building the economic resilience of Malaysian households today can directly correlate with savings from future costs of poor health, educational and welfare outcomes due to underinvestment today.

However, a significant shift in our worldview as a member of the Malaysian society is also crucial – specifically, our perception of social protection as a “charity” needs to shift towards seeing social protection as a “shared responsibility”. This article will henceforth make the case for three ways we can change our perception on social protection to enable decision makers to make the hard-yet-necessary investments to strengthen the Malaysian social protection system.

What is social protection?

Before that, it is worth understanding what the concept of social protection entails. According to the International Labour Organization (ILO), a social protection system is a package of policies and programmes that a society provides for its members to protect all members against economic and social distress caused by a reduction or complete loss of income due to life risks. The ILO stipulates nine (9) key sources of risks that may befall anyone in their lifecycles, namely the need for medical care, sickness, unemployment, old age, employment injury, family, maternity, invalidity (or disability) and the loss of a breadwinner.

There are three (3) components to a good social protection system: Protect, Prevent and Promote.

‘Protection’ refers to “social assistance” which is typically fully-financed by the government through fiscal spending, often on outright cash transfers or coupons.

‘Prevention’ refers to “social insurance” programmes which are schemes designed to financially protect members against contingencies. While these tend to require participants to contribute, they need not necessarily be tied to formal employment. The self-employed and homemakers may also participate, and in fact should do so as social insurance tends to be the cheapest form of basic coverage compared to for-profit private insurance schemes.

‘Promotive’ programmes refer to active or passive labour market interventions to ensure people remain in productive employment to keep themselves out of deprivation. Active labour market programmes can be in the form of skills training, resume building workshops, or work shadowing, while passive labour market programmes tend to be financial in nature, like unemployment or job-search allowances.