A memorandum to YAB Dato Seri Anwar Ibrahim, Prime Minister of Malaysia

The PSM would like to congratulate the Prime Minister and the Government of Malaysia on the appointment of Malaysia as the Chairman of ASEAN for 2025.

This is an excellent opportunity for us to contribute to the development of ASEAN into an entity that benefits all residents of Southeast Asia.

To attain this goal, ASEAN member countries need to recognise the following realities:

 ■ The pattern of economic development in ASEAN has kept the income of ordinary workers at low levels, even though the Gross Domestic Product of most ASEAN nations has increased dramatically.

In Malaysia for example, GDP increased 25 times in real terms in the last 5 decades. But the majority of people in the bottom 80 per cent of the population (B80) are burdened with debt and mired in economic problems.

■ Competition between ASEAN countries for Foreign Investment (FDI) has caused a contraction in the ratio of government income to GDP.

For Malaysia this ratio has decreased from 30 per cent in the 1980s to only 15 per cent last year.

This reduction in government revenue has severely impaired the government’s ability to strengthen the social safety net for our people.

■ ASEAN countries still rely on the “export-led growth” model of development where we rely on the markets of Western countries, Europe and Japan to generate demand for our industries.

This strategy should be re-evaluated in this era where the rate of economic growth in Western countries has declined.

■ Our youth are facing problems in getting a guaranteed job with reasonable salary.

■ ASEAN member countries’ participation in multiple “Free Trade” Agreements has severely restricted their government’s ability to effectively steer their own national economy and finances.

■ The climate crisis is on-going, but the ASEAN members do not have the fiscal flexibility to deal with it effectively.

Considering the above-mentioned realities, we would like to recommend the following approaches:

1. The need to develop the internal market for the ASEAN region

For the past five decades, countries in ASEAN have followed the advice of the World Bank, the IMF and the WTO to rely on foreign investment (FDI) to drive the construction of manufacturing industries and rely on the markets of rich countries in Europe and North America as markets for goods created by factories in ASEAN.

This development model cannot continue forever because:

■ The West only represents 12 per cent of the world’s population. It is impossible for them to generate enough gross demand for all countries in the world.

■ The rate of GDP growth in Western countries is low because of the relocation of many factories to Asian countries, where manufacturing costs are much lower.

A process of “de-industrialisation” has taken place in Western countries in the past 40 years, and this has led to the loss of high-paying factory jobs.

These have been replaced by precarious jobs in the service sector with low and unstable incomes.

If the internal market in the ASEAN region (which has a combined population of 690 million) can be developed, it will bring several benefits to our economy including:

■ Market expansion for local goods including for small traders

■ Opportunities for new investments

■ Generation of new jobs

■ Increase in tax collection

■ Reduction in dependence on the European and United States markets.

2. Strategies to increase the wages of ordinary workers in ASEAN countries

At present, the wages of ordinary workers in ASEAN countries are approximately 1/6 (Malaysia) to 1/15 (Cambodia) of the wages of ordinary workers in European countries and the United States.

One reason is the competition between ASEAN countries to attract foreign investors by offering ourselves as countries where manufacturing costs are low.

However, the low wage policy makes it difficult for ordinary workers in our countries to make ends meet, and prevents a fairer distribution of national income to the working class.

In addition, household demand is the largest contributor to gross demand of any country.

But, when the majority of consumers are low-wage workers, how can the gross demand of households grow?

Currently, countries in ASEAN are afraid to increase the minimum wage because the risk of creating a “comparative disadvantage” in the competition for FDI.

That risk can be overcome if several ASEAN countries – Malaysia, Thailand, Vietnam, Indonesia and the Philippines particularly – can agree to increase their minimum wages (which currently vary) by 10 per cent every year for the next five years.

How this can be enforced needs to be discussed in depth.

Our recommendation is to include this approach in the ASEAN Free Trade Agreement, so that import taxes can be imposed as a “fine” against countries that fail to comply with the minimum wage increase schedule that has been agreed to.

3. The need to stop the race to the bottom in corporate tax

Government spending is another major contributor to a country’s gross demand.

In all countries in ASEAN the ratio of government expenditure to GDP has decreased in the last 50 years.

In Malaysia for example, government spending has decreased from 35 per cent of GDP in the 1980s to 20 per cent of GDP now.

The main reason is the reduction of corporate tax from 40 per cent on company profits in 1988 to 24 per cent on corporate profits this year.

Malaysia had to reduce the corporate tax rate because it is competing with Thailand, Vietnam and Indonesia for foreign investment.

Currently, corporate tax in Thailand is 20 per cent and in Singapore, 17 per cent.

Continued reduction of corporate tax rates in ASEAN countries not only hinders the development of the region’s internal market, it also restricts fiscal flexibility for the government to implement programs to help ordinary people and to protect the environment.

It has also caused an increase in national debt in most ASEAN countries.

This matter should be taken seriously by ASEAN and specific steps taken to increase corporate tax gradually and simultaneously to reach a higher level – we recommend 30 per cent of the company’s gross profit, within a period of 10 years.

This means that Malaysia would be required to increase corporate tax by 0.6 per cent every year for the next 10 years, while Thailand has to increase by 1 per cent every year so that both countries can achieve the goal of 30 per cent within a period of 10 years.

Again, effective measures to implement this, perhaps by tweaking the ASEAN FTA, has to be discussed.

4. An effective carbon tax

The “cap and tax” system is a good way to reduce greenhouse gas emissions. Under this system, the largest emitters of carbon dioxide will be given limits (the “cap”) for carbon dioxide production, based on the type of industry and the scale of production.

A tax will be imposed on carbon dioxide emissions that exceeds the set limit.

Vietnam has imposed a carbon tax at a rate of US$0.50 per ton of carbon dioxide, and Indonesia is planning to launch it at a rate of US$5 per ton.

But these rates are far less than the carbon tax imposed in Europe.

France is charging US$52 per ton and Sweden is currently charging US$137 per ton of carbon dioxide.

As is well known, too low a carbon tax rate will not incentivise the corporate sector to switch to renewable energy sources.

The fact is, ASEAN countries are anxious that the carbon tax will increase the cost of energy, transport and goods such as cement and iron, thus harming the country’s competitiveness in the race to attract foreign investment (FDI).

This concern can only be addressed if the carbon tax is implemented at about the same rate in all ASEAN countries. Negotiations on how this can be done should begin.

5. The problem of youth unemployment and under-employment

Young people between the ages of 20 and 35 are facing serious problems in making a living.

Job opportunities are reduced, and new graduates are unable to find jobs commensurate with their education/training.

The work that can be found often is lowly paid and most of it is short-term contract work without guarantees or social protection.

The problem of lack of work can be overcome if:

■ More government positions are created in the health sector, welfare sector and environmental sector – to restore rivers, forests and to create a “circular” economy. But the fiscal space is narrow for most ASEAN countries.

Government revenue is currently insufficient to launch initiatives like this.

■ The private sector in ASEAN decides to produce more goods or services. But this path is constrained by the slow growth rate of domestic aggregate demand, because in general the wages received by workers in this region are 1/6/ to 1/15 of the wages received for the same work in Western countries.

■ The number of hours of work per week is reduced gradually such that available work is shared out among all those who need to work.

The problem of youth unemployment should be recognised by ASEAN governments and studies and discussion sessions should be organised to find effective measures to overcome this problem which, if failed to be handled effectively, will lead to frustration and radicalisation of our youth.

6. Joint ventures to pioneer new green industries

It is very important for ASEAN countries to work together to make electric buses of various sizes, solar panels, machinery to recycle organic waste to generate electricity and so on.

These industries are very central to transition to a green economy and reduce greenhouse gas emissions.

These new industries, if they can be “on-shored” in ASEAN, will also generate jobs for our people and develop domestic gross demand in the ASEAN region.

7. Basic rights for refugees

ASEAN countries need to improve our treatment of refugees. If there are some countries that are not ready to sign the Refugee Convention, we should at the very least:

■ Grant refugees the right to work legally.

Currently they are forced to work illegally and this exposes them to exploitation by irresponsible employers.

Currently we have approximately 2 million legal migrant workers in Malaysia, and approximately 160,000 refugees recognised by UNHCR.

We can easily reduce our migrant workers a bit so that we can give jobs to refugees.

■ Part of the fees collected for work permits should be used to pay the cost of medical treatment of refugees and their families in government hospitals.

The implementation of these two steps will protect some of the basic rights of refugees in our countries.

8. Create a check-and-balance process for the ASEAN extradition agreement

Currently ASEAN countries have agreed that if a citizen from country “A” escapes to another ASEAN country “B”, country “B” must arrest and send back that person if requested by country “A”.

We have no objection if this agreement is only used to arrest criminals, but, considering that some countries in ASEAN have yet to attain a reasonable level of human rights, we feel it is necessary to create a mechanism to filter “extradition” requests to ensure that people who flee because of human rights or political issues are not sent back just like that.

We should establish a check and balance process where the person can show evidence that he is not a criminal but a human rights activist or a political refugee who should be granted asylum for a longer period.

9. Strengthening the relationship between the general public in ASEAN countries

Unfortunately, even though we have all been independent for more than 60 years, we still know more about the political and social systems of the countries that used to colonise us.

Many people in ASEAN are not exposed to social and political trends in neighbouring countries.

Governments in ASEAN should organise various programs that create opportunities for ordinary citizens in the ASEAN region to visit each other, attend joint programs in various fields, participate in adoption programs in neighbouring countries, participate in retreat sessions for several days to discuss general issues such as how to transition to the green economy and the like, and to mingle openly.

Friendship between ASEAN countries should not be limited to political leaders and high government officials only.

We must foster and encourage people-to-people friendship.

We hope the Malaysian Government will take the ideas presented in this memorandum seriously.

We are ready to meet with the government to discuss the issues listed above in more depth if necessary.

Click here for list of groups endorsing the memorandum.