Govt may increase levies to stem foreign worker reliance


The government may impose higher levies to reduce the country’s reliance on foreign workers as the country seeks to remedy the economic distortion created by imported labour.

Second Finance Minister Datuk Seri Johari Abdul Ghani said industries that rely heavily on foreign workers will have to do away with the dependence over time.

“We will impose more levies. At the moment, the levies are already considered high. So, we will give companies more time to manage this,” he told reporters on the sidelines of the launch of MBSB Bank Bhd in Kuala Lumpur yesterday.

He said the country needs to manage the reliance on foreign workers, but the need for such labour will continue to exist.

“We understand that we cannot have zero foreign workers. We still need them, but we need to reduce the reliance on them,” he added.

Malaysia’s monetary regulator in its annual report said the readily available pool of cheaper low-skilled foreign workers distorts domestic factor prices and discourages industrial upgrading.

“It makes labour relatively cheap when compared to capital, and thus weakens incentives for firms to substitute labour for technology, or for greater value-adding activities from employment of higher-skilled labour,” said Bank Negara Malaysia (BNM).

The central bank also said the country’s transition to a high-income and developed nation “is at risk” if companies continue to engage on a “race to the bottom” in relation to labour costs, and are unwilling to pay more despite commensurable productivity gains had they adjusted.

The central bank also blames the the cheaper foreign workers which had allowed employers to keep wages low.

Based on the central bank’s figure, foreigners hold more than a fifth of the jobs in the agriculture, construction and manufacturing sectors.

Malaysia has a high ratio of migrants to the total population among the countries in Asia Pacific, but only 5.2% of these foreigners are tertiary educated.

“The ease and availability of these low-skilled workers at a cheap cost creates deep distortions that disincentivises firms to transform,” said BNM.

Dependence on foreign workers had also affected the incomes for locals with the central bank recommending a living wage of RM2,700 (an adult), RM4,500 for couples without children and RM6,500 for couples with two children.

The provision of living wage should also commensurate with productivity and could be a step towards a higher quality of life in Malaysia, while serving as a guide of the income level needed to achieve the minimum acceptable living standard.