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“It needs to be targeted”, “It must only benefit the poor”. I don’t disagree but that is leading most governments down the rabbit hole of targeted social assistance that doesn’t work.

I think many governments including policymakers are confused. Probably as confused as the regular person on the street. In Malaysia, social assistance is the talk of the town with the Budget 2024 stating that the government will shift towards a targeted subsidy system rather than a blanket one.

• Targeted subsidy: Targeted towards the people who need them, and not to people who don’t.
• Blanket subsidy: Everyone gets the subsidy no matter who they are.

Of course, everyone would say targeted subsidy is better. You are supposed to help people who need it and not rich people who don’t. A main criticism of blanket subsidy is that it is wasteful as it goes to people who don’t need it. However, dare I say, the target might be worse. It doesn’t even reach the people who need them. And here’s exactly why I think so.

Targeted subsidy needs governments to identify people accurately. That’s the main problem. The cost of obtaining information about every Malaysian is just too high. While the ministry is saying all sorts of things that there will be ‘strict’ criteria for people to be qualified for social assistance, there isn’t any concrete plan on how to find and identify them.

Many economists around the world are saying that instead of spending all this money on building databases, identifying information about people, and indirectly having a full workforce and staff to implement these programs, you can just provide social assistance based on your life cycle. The idea is simple really.

If you are a mother who is giving birth, the government will provide milk powder regardless of your income. As your child grows up, childcare subsidies will be given until age 7. When your child enters school, school meals will be given to every child regardless of status. This will persist until the child is old enough to find a job. This kind of social assistance is not being considered seriously, even though it could potentially be more cost-conscious and reach more people in the economy.

Think about it. These subsidies encourage families to have more children ( the world is going through low birth rates, and incentivize parents to send their children to school.