Prime Minister Anwar Ibrahim, when tabling the budget on Oct 18, said this will mostly be done through digitalising services and slashing processing time.
In line with the objective to improve public service delivery, the government is allocating RM25 million to the Special Task Force on Agency Reform to underwrite the cost of a collaboration with the Malaysian Productivity Corporation.
This is part of a larger move to make the civil service more productive — that is, to generate higher output per input.
A rise in productivity leads to better services, justifying increases in public sector wages. At the same time, salary increments can also serve as incentives to boost performance so that wage hikes are accompanied by higher productivity.
In Budget 2024, emoluments alone accounted for 24.3% of operating expenditure. This amounted to RM95.6 billion. Under 2025 estimates for federal expenditure, public servant salaries will rise to RM105.93 billion.
Malaysia’s civil service is among the world’s biggest. While experts acknowledge the need to trim the fat to keep expenditures in check, the wage hike has also been cautiously welcomed as many hardworking public servants such as teachers — particularly those in the lower grades — have low salaries.
Budget 2025 changes that by raising the wage floor. Via a restructured salary scheme effective Dec 1 this year, “civil servants will receive a minimum monthly income of RM2,115,” said the prime minister.
However, ministers and political appointees will continue to receive a reduced salary.
High-income nation
The civil service is not the first to see wages linked to productivity.
Under Budget 2024, the Madani government rolled out the Progressive Wage Policy (PWP) pilot programme.
The objective of the PWP is to tackle Malaysia’s productivity woes and wage stagnation. In 2010, 50% of Malaysian workers earned less than RM1,500 monthly. In 2024, the monthly median wage has risen to RM2,844.
However, this is only slightly above the RM2,700 living wage Bank Negara Malaysia recommended seven years ago in 2018.
The PWP ties salary increments to productivity. Upskilling and reskilling programmes help Malaysian employees generate more value for their employers and boost the nation’s overall economic competitiveness, justifying higher wages based on greater productivity levels.
Besides a high-skilled workforce, technology and innovation also boost productivity and in turn, incomes — mainly because these tools help employees produce goods and services more efficiently.
Earlier this year, Malaysia was ranked 15th globally in the International Telecommunication Union’s Information and Communication Technology Development Index. In late September, Malaysia clinched the 33rd spot out of 133 countries in the 2024 Global Innovation Index.
Budget 2025 builds on these positive trends by allocating funds to:
- increase artificial intelligence adoption (RM10 million);
- boost digitalisation of small and medium-size enterprises (RM50 million), and
- advance research, development, commercialisation and innovation activities (RM780 million).
Malaysia’s productivity level per employee stood at RM96,692 in 2023 and may increase to RM107,710 in 2025, according to the Malaysian Productivity Corporation, if current momentum continues.
Fair value
But some economists have noted that certain employers may abstain from raising wages, even when there is a rise in productivity.
A 2018 Bank Negara report noted that even with the same output and productivity levels, a worker in Malaysia is paid US$340 compared to an average of US$510.80 in other countries.
Malaysia’s history of relying on cheap foreign labour and the reduced bargaining power of workers — through the lack of unions, for example — are partly to blame for this trend.
To address wage stagnation and low wage growth, the government announced that it would be raising Malaysia’s minimum wage from RM1,500 presently to RM1,700. The change will be effective Feb 1 next year.
“It is advisable to offer salaries that reflect employees’ skills and qualifications,” added human resource minister Steven Sim while speaking at a recent event in Merang, Terengganu.
“However, the minimum wage should not serve as the benchmark for starting salaries for all workers.
“This adjustment in minimum wage is a strategy designed for workers with the most basic skills, especially the 4.35 million individuals currently earning below RM1,700.
“By aligning salaries with academic qualifications, job roles and skills, companies can benefit as well. If employees are not compensated fairly, we risk losing talent and face challenges in attracting skilled manpower,” Sim said.
Paying wages in accordance with productivity is not legally mandated. The PWP, which advocates for productivity-linked wages, is also a voluntary scheme.
Anwar has announced that the PWP will be fully enforced next year with an allocation of RM200 million that will benefit 50,000 workers. Plans to incentivise productivity-linked wages beyond the PWP’s scope, however, were not elaborated upon in Budget 2025.