OSK Research: Civil servants’ salary revision to boost consumption


Mei 9, 2007 oleh pemudawilayah

By Kevin Tan , TheEdgeDaily

Consumer spending can grow by another 0.5 percentage point (ppt) in 2007 and one ppt in 2008, if there is a pay rise for civil servants under the new salary scheme that is currently being studied by the Public Services Department (PSD).

Using the marginal propensity to consume (MPC) ratio of 0.45 in 2006 and an import leakage assumption of 10%, the salary revision could generate an additional RM2.7 billion of consumer spending per annum, according to OSK Research in a research note on May 8.

Following this, Malaysia’s economy could grow by between another 0.2 ppt and 0.5 ppt respectively in 2007 and 2008 as a result of the higher consumer spending growth, it said.

“The salary revision will elevate disposable income of civil servants which in turn will boost consumer spending and its contribution to GDP (gross domestic product) growth,” it added.

On Monday, Prime Minister Datuk Seri Abdullah Ahmad Badawi said civil servants deserved a pay rise and the PSD was in the midst of studying the salary revision proposed by the Congress of Unions of Employees in the Public and Civil Services (Cuepacs).

Cuepacs has requested for a comprehensive revision on the civil servants’ salary scheme since early this year citing rising cost of living, improved work performance and that the last meaningful revision was done in 1992.

OSK Research said there were about 900,000 civil servants directly under the government payroll with another 300,000 workers indirectly affiliated with the government at the state and local level as well as various agencies and statutory bodies.

Including 500,000 retirees, about 1.7 million people in Malaysia could potentially benefit from the massive pay hike exercise, it added.

“With the potential implementation of a revised salary scheme, we envisage a broad-based boost for most sectors of the stock market, including consumer products, properties, banking, telco and media,” it said.

However, Cuepacs’ proposal may not be accepted wholesale as the total package of RM5 billion per annum represents 19.4% of the existing federal government’s emolument expenses of RM25.8 billion or 4.4% of the total operating expenditure of RM113 billion for 2007.

“Given the financial constraint with a RM20 billion budget deficit expected in 2007, our view is that the government may not approve the proposal wholesale.

“Instead, we see partial approval to the Cuepacs’ recommendation amounting to RM4 billion, but opine that the approved scheme will benefit those in the lower income bracket,” OSK Research said.

It also said the claim by Cuepacs that there was no pay hike since 1992 “was not entirely true” as civil servants enjoyed about 10% salary adjustments in 1996, 2000 and 2002 respectively.

The government had also started to pay cost of living allowance to civil servants since 2005, it added.


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