Does giving cash aid benefit the people?
This paper summarises key findings by Social & Economic Research Initiative
1st February 2024
The best things in life are free, particularly cash given to the most vulnerable in our society. A general consensus around this statement would be expected; but that is unfortunately not the case. Criticism regarding ‘free cash’ has been prominent from local netizens, political parties and economists. Deemed as ploys and/or bribery to garner support for past and present governments, or as a quick-fix solution in times of instability, cash has repeatedly faced intense scrutiny as a development tool.
Skyrocketing costs of living and Malaysia’s path to economic stability has also brought a rise in arguments favoring sustainable policies and a deviation from short-term solutions like cash welfare. What such cases fail to consider however is that cash initiatives may not just be transient political ploys or a temporary policy salve, but rather reliable bridges to income equality gaps in the country.
What are cash initiatives?
Cash initiatives are single or recurring payments typically given to low income groups to tackle poverty levels and improve living conditions. Sumbangan Tunai Rahmah (STR) is the current program employed by Prime Minister Datuk Seri Anwar Ibrahim’s government, targeting B40 income groups. Consisting of single and multi-child households, senior citizens, disabled individuals, and others, the STR program focuses on improving the purchasing power of low income earners and providing them with autonomy to better their living circumstances. With cash payments of up to RM2,500 to larger households and serving 8.2 million beneficiaries, STR is among the largest of its scale and adoption in Malaysia given teetering economic wellbeing and an upsurging focus on income equality.
The initiative is not the first of its kind however, with cash aid being an enduring feature in Malaysia’s social welfare system. Initiated in 2011 under previous Prime Minister Najib Razak as Bantuan Keluarga Malaysia (BR1M), the aid provided payments of RM500 on an annual basis. Following BR1M, stipends have been perpetually implemented under different acronyms, including BSH, BPN, BPR, BTR, BKM and finally, STR. Amendments to the structure and recipients of the program were made based on each government’s focus, with some including both B40 and M40 groups -such as one-time payments distributed during the COVID-19 pandemic under BTR - while others focused on low-income earners only, offering as much as RM2,600 for eligible households under BKM.
Cash assistance faces intense scrutiny
Irrespective of the utilitarian nature by which cash is given to B40 groups to tackle deep rooted poverty and inequality, these assistance programs are still subjected to intense criticism by the public. They express that cash is an unsustainable solution that can only be useful in times of crisis, or to cater for immediate needs of low income families. For example, politicians such as Chairman Lim Guan Eng, from the Democratic Action Party (DAP), earlier scrutinized the BKM initiative that was adopted under previous Prime Minister Ismail Sabri Yaakob’s government. Stating that the program is a basic ‘Band aid’ package, and that medium and long-term plans for aid remain ambiguous. Regular objection for these programs also extends well beyond the political realm, with economists and the public expressing distrust for the ability of cash handouts to help individuals or the country in any way.
Skepticism regarding these welfare benefits is not limited to their effect on the economy, or lack thereof, but stretches to claims of political bribery. Cash is positioned as gifts and handouts given to B40 groups to sway them in favour of the respective government. This was the case with previous RM100 e-tunai payments, where netizens and public actors expressed that they may be politically driven with the purpose of appeasing the public, rather then being well intended, long-term solutions.
Cash is not economically shortsighted
The basis of these arguments lies in assessment of Malaysia’s economic and social background, with concerns of widening income classes and hikes in costs of living. While valid, this disregards the fact that cash has repeatedly been proven to be a sustainable and important tool for economic growth; far from a quick-fix solution. It is an effective way for B40 groups to gain spending autonomy and lift themselves out of poverty. Groups that received cash payments were frequently shown to increase consumption of durable products, rent and food, and improve their living conditions.
This is entirely contrary to harmful biases perpetuated in communities and among policy makers that accuse low income groups of adopting a ‘poor mindset’. For instance, claims of ineffective use of welfare payments and increases in spending on temptation goods are present among the general public, with 10,000 respondents from 28 countries giving fragile support for cash assistance for this very reason. These arguments however, have long been discredited, as more than 20 studies across Asia, Latin America and Africa, highlighted a negative correlation between cash payments and spending on temptation goods.
Cash initiatives can also be used to alleviate systemic income gaps by improving the lives of the recipient, their families and community as a whole. Welfare payments were shown to boost life expectancy, health, education levels and even early childhood interventions for low income groups. The rippling effects from cash allowed the families to obtain better education and nutrition, and to reap benefits of $62 for every $1 of welfare given to them. In contrast to arguments of welfare payments being ‘band-aid’ solutions, cash pumped to low income groups was even proven to stimulate economic activity and boost local development. As studies in Kenya for example show greater business development, and monetary circulation from increased spending of low income groups. Other studies in the USA highlighted a drop in child poverty and higher growth levels.
Cash as a political ploy
Instances of government self-preservation have also driven arguments that cash is sometimes utilized as a political maneuver. Perpetual adoption of cash initiatives across governments and their implementation as a steady stream of payments all year round helps negate such arguments. STR for instance, provides payments on a quarterly basis for recipients, away from any political activities. Even when provided as gifts, cash stipends have not been effectively traced to play a hand in any sway of votes or election results in Malaysia. This makes it difficult to pinpoint ways in which welfare payments may have influenced political stability in the country. Regardless, net proven benefits of cash to B40 groups remains more significant than any political discourse surrounding them - B40 individuals in Klang Valley and Kedah previously expressed favorable opinions for the schemes, specifically BR1M .
Cash ‘gifts’ given in a vacuum are also rarely employed in Malaysia as most programs fall under a wider welfare umbrella. Focusing on improving B40’s living standards, the current MADANI government has expanded well beyond cash provisions with welfare targeting social development in general. Five out of 15 initiatives present immediate relief for their beneficiaries through cash, and the rest offer subsidized school education, car seats, driver's licenses, health checkups, insurance, and housing. Aimed at mitigating large-scale payments that often impact B40’s disposable income levels. Employment projects are also utilized to ensure that cash or subsidies provided can be increasingly sustainable.
Malaysia has proven that implementation of cash as a welfare tool is neither a short sighted solution for times of uncertainty or a simple political maneuver. Rather, perpetual stipends provided to B40 groups, coupled with a large welfare bubble targeting poverty determinants has demonstrated cash as a robust policy to alleviate income inequality. The country has therefore reaped benefits from these initiatives as the IMF noted strong post pandemic recovery in 2022, in part due to diversified and arbitrary spending on cash welfare that controlled inflation levels. This comes with existing price controls in the market and pent-up local demand that enabled economic revival with steady domestic price hikes.
Other than cash, what else can we do?
While the effectiveness of cash initiatives has been widely recorded, proper implementation and acknowledgment of general concerns regarding these programs remains necessary. As the country continues to face unstable economic environments and poverty rates having yet to return to pre-covid levels, improvements can ensure further sustainability and equal gain for the deserving demographic.
Firstly, the government can establish education initiatives focused on budgeting, saving and debt management to improve financial literacy in Malaysia. This is to ensure that cash recipients understand the best ways to utilize the money provided to them and how to maximize its positive effect on their income. Secondly, alignment with banks and the private sector can occur to allow for greater access to banking services that can then bridge gaps in financial inclusion for B40 groups. Meanwhile, they can also build a comprehensive database encompassing an umbrella of welfare initiatives and partnering stakeholders to enable full awareness of all ongoing government aid programs.
As for greater public acceptance for the programs, the alteration of their names away from political branding can ensure a clear message. Emphasizing that welfare programs are aimed at uplifting the community and safeguarding the dignity of vulnerable groups can ensure neutrality and minimize the political motives of such campaigns. The current expansion of welfare benefits can also further accommodate a wider range of groups. By creating a tiered system, supplying ascending payments on a need basis, the budget can be further stretched to include M40 groups, without affecting benefits already given to B40.
Improper implementation and political branding for cash welfare benefits may harbor negative connotations for cash as a development tool, fueling public distrust and political discourse around its underlying intentions. These circumstances however do not negate the clear historical benefits of cash or its role in improving B40 groups’ lives, and the economy as a whole. The main focus of this assistance should be directed towards helping Malaysia’s most vulnerable individuals lift themselves out of poverty in the most effective manner, rather than prioritizing political and social entanglements surrounding its intent.