‘Malaysia’s need for universal child benefits’

Hawati Abdul Hamid, Khazanah Research Institute

Children are one of the most important resources for driving Malaysia’s future growth. Unfortunately, child-related indicators have deteriorated in recent years. The economic fallout induced by COVID-19 will aggravate the situation if the status quo continues.

Childhood is an inherently vulnerable stage of life as children rely on others to provide for their needs. Children are disproportionately affected by poverty — the Household Income Survey 2019 data shows that the poverty rate among households with children is almost 7 per cent higher than households without children. Children from poorer households are more likely to live in inferior living conditions and receive worse nutrition, healthcare and education. These circumstances have long-term implications for physical, cognitive and social development, as well as subsequent future earnings.

Vulnerability during childhood is not limited to poverty alone. Nutritional challenges involve undernutrition, obesity and micronutrient deficiencies, which lead to higher diet-related noncommunicable diseases during adulthood. The National Health and Morbidity Survey 2019 data shows that the growth of about 22 per cent of children in the bottom 40 per cent (B40), and 17 per cent in the top 20 per cent of households, was stunted. The rates of obesity for both groups do not differ much, at 16 per cent and 18 per cent respectively, with some indicators showing the situation has worsened over the years.

Malaysia should adopt a universal child benefits (UCB) scheme to set the country on the right course towards overcoming the longstanding coverage issues in its social protection system.

A UCB scheme should provide an unconditional monthly basic income to every child until they turn 18. Installing a social protection floor will help break the poverty cycle, alleviate stigmatisation and optimise every child’s potential. A universal scheme will also minimise undue administrative costs to target ‘eligible’ beneficiaries.

Unlike the occupational injury, joblessness and retirement savings schemes for adults, the existing social security provision for Malaysian children does not have the legislative backing that could guarantee its sustainability. While there is some welfare aid for children, it is focused on assisting the ‘deserving’ poor. Eligible recipients are identified using poverty measures such as the poverty line and B40 income thresholds. While targeting seems sensible, exclusion among poor children remains a serious issue as those living just above the income thresholds continue to be left without support.

Universality means that benefits go to both rich and poor kids alike, warranting legitimate consideration of why rich households should also receive basic benefits. What is often forgotten is that child-related benefits already accrue to children in higher-income households. While high-income households do not receive direct handouts, tax-paying parents and guardians are eligible to claim tax relief for several child-rearing expenses, including child allowance, childcare costs and relief for educational savings.

Under the status quo, children from the middle-income families benefit the least — or are excluded entirely — as their parents are not ‘poor enough’ to be eligible for social assistance, but have insufficient income to benefit from tax reliefs. A universal approach will ensure the inclusion of children ‘missing in the middle’, while simultaneously improving the progressivity of benefits across income groups.

The UCB can be implemented in stages, with a yearly expansion to achieve full coverage. It could, from the outset, start by covering children aged 0–12 years with an estimated cost of around RM12 billion (US$2.9 billion) for an individual benefit level of RM150 (US$35) monthly. This could be achieved by consolidating the tax revenue forgone from child-related tax reliefs and the existing social assistance schemes. The latter includes schemes such as Skim Bantuan Kanak-kanak (that provides monthly cash transfers for children living poverty line) and Bantuan Prihatin Rakyat (that provides irregular cash transfers for B40 households with a top-up for each child). It is estimated that up to RM14 billion (US$3.3 billion) could be made available from the rationalisation exercise alone, underscoring how the scheme could be implemented with a neutral fiscal impact.

Covering all children aged 0-12 years (or 72 per cent of total children aged 0-17 years), the proposed investment translates to 0.74 per cent of GDP, a slightly higher share of GDP than the global median of 0.6 per cent. By comparison, a lower-middle-income country like Mongolia invests 0.6 per cent of GDP, covering 85 per cent of children, while South Africa, a country with a larger share of children, invests 1.3 per cent of GDP, covering 64 per cent of children.

A universal scheme is critically needed to build an inclusive social protection system, and a UCB scheme is an ideal entry point. Universality would guarantee the inclusion of all children from the day they are born. Enrolment of newborns into the scheme would be automatically completed when they are registered for a birth certificate.

Once a UCB scheme is implemented in Malaysia, other need-specific interventions could be better designed based on information made available in the child registry. When children near graduation from the UCB scheme, another automatic registration could be made for employment-related social insurance and retirement schemes, preparing them for their working lives and old age.

Hawati Abdul Hamid is Deputy Director of Research at the Khazanah Research Institute, Malaysia.