CME Estimates Malaysia Can Save Over RM 1.1 Billion in Government Spending if Harm Reduction Policies Are Adopted
Monday, 02 OCTOBER 2023: The Center for Market Education (CME) estimates that over RM 1.1 billion in government spending can be saved every year if the government adopts harm reduction policies in the industries of public health and transportation. Furthermore, more than RM 305 billion can be generated in domestic and foreign investments and more than 300,000 jobs created in the next ten years in the semiconductor industry alone. This research finding is outlined in the recently released Policy Paper Nr 6, Harm Reduction, Healthcare Savings and Economic Growth: A Strategy for Malaysia, authored by Dr Carmelo Ferlito, CME CEO, and Imran Shamsunahar, CME Research Assistant. The new paper enriches the series of studies in health economics which CME inaugurated in 2021 with a very well received work on dietary supplements.
The new paper introduces the concept of harm reduction, defining it as a public policy strategy designed to limit the negative social and physical consequences associated with various human behaviors, both legal and illegal. A harm reduction approach rejects the usage of restrictions or bans, and instead embraces policies that provide more choices for less harmful alternatives.
«Among other topics, in the past two and a half years we have produced several works on health-related polices and their impact on the economy», stated Dr Ferlito; «it is a fascinating field of research, which touches in a tangible way the subject which is at the heart of CME activity: individual freedom».
The paper outlines three key findings
- Estimating the healthcare savings brought by the adoption of harm reduction policies;
- Estimating the positive spillovers on the economy brought by the adoption of harm reduction policies in terms of investments and job creation;
- Listing the pillars for a comprehensive policy strategy inspired by harm reduction.
«Starting with the impact of harm reduction applied to the consumption of nicotine products such as e-cigarettes and heated tobacco products, we estimate healthcare savings of up to RM 787.78 million in ten years, deriving from declines in adult smoking due to switching to less harmful alternatives. Furthermore, switching just 1% of the smoking population to alternative products could potentially save RM 2.61 billion in loss of productivity (in this case, gain of productivity). In other words, this represents a yearly saving equivalent to 0.16% of Malaysia’s GDP», Imran explained.
Looking at the estimated healthcare saving deriving from the application of harm reduction to electric vehicles, the paper projected that achieving the WHO 2025 targets would bring the healthcare cost down to USD 21,919 million (RM 103,195 million) (-70%) due to air pollution. Based on the government’s targets of having 15% of the total industry volume (TIV) made up of EVs and hybrids by 2030, and to 38% by 2040, it was projected that healthcare savings would be between 6.43% and 24.93% of the current pollution-related costs; these means to obtain savings from reduced emissions between USD 755.89 million and USD 1,157.27 million (RM 3,558.73 and RM 5,448.43 million) by 2030 and between USD 1,914.92 million and USD 2,931.75 million (RM 9,015.44 and RM 13,802.68 million) by 2040.
With regard to sugar alternatives, the direct healthcare costs of diabetes were analyzed. CME estimated that the direct and indirect costs for Malaysian society deriving from diabetes amount to almost RM 15 billion per year. Through the consumption of chromium picolinate, RM 1.31 can be saved per RM 1 spent on chromium picolinate, amounting to a total potential net cost savings of RM 248.27 million per year. Looking at the implementation of differential taxation on sugar content, it was estimated that a 10% drop in sugary drink consumption will potentially turn into a 0.7% healthcare cost saving with regards to diabetes-related healthcare costs, or RM 105 million.
ECONOMIC GROWTH AND JOB CREATION
As semiconductors are an essential component for both EVs and electronic devices for e-cigarettes and heated tobacco products, and given the prominent role of Malaysia in this industry, the paper estimated that the right set of harm reduction policies can generate the following spillover effects on the semiconductor industry and its ecosystem over a period of ten years:
- Almost USD 65 billion (more than RM 305 billion) in private and government DDIs and FDIs through more than 550 projects;
- More than 300,000 jobs (direct, indirect and induced).
Furthermore, if the MoH target to reduce smoking prevalence to 5% is achieved with harm reduction policies, the following positive spillovers in the vaping/HNB industry can be generated:
- Vape industry retail value growing from RM 2,490 million to RM 8,790.65 million (+253.04%);
- Number of workers involved in the industry growing from 31,500 to 82,109 (+160.66%);
- Number of retailers growing from 9,750 to 21,929 (+124.92%);
- Number of importers growing from 100 to 233 (+123.29%);
- Heat Not Burn retail value growing from RM 191 million to RM 528.04 million (+176.46%).
The paper is concluded with a set of policy guidelines inspired by harm reduction and to be applied to the specific case of Malaysia. These policies should be centred on the following pillars:
- Avoid prohibition and uniform taxation, as such policies only favour the growth of illicit trade and Malaysia has one of the highest levels of illicit cigarette trade globally;
- Follow international best practices such as the United Kingdom and New Zealand;
- Favour a fiscal action centred on differentiated taxation, whereby taxation is proportional to the harm level;
- Nurture innovation as the emergence of less harmful products is strictly linked to an ecosystem that favours entrepreneurship and thus innovation; in order to do so, the following actions are suggested:
- Favouring industrial concentration, as firm dimensions are a key element for investing in R&D and innovation;
- Promoting trade liberalization, so that a bigger potential market size creates an incentive to innovation;
- Promoting humanistic education as a key for critical thinking, as innovation is based on challenging common wisdom;
- Promoting human and intellectual freedom;
- Strengthening institutions and the rule of law.
About CME: The Center for Market Education (CME) is a boutique think-tank based in Kuala Lumpur, Malaysia, and Jakarta, Indonesia.
As an academic and educational institution, CME aims to promote a more pluralistic and multidisciplinary approach to economics and to spread the knowledge of a sounder economics, grounded in the understanding of market forces.
In order to do so, CME is not only involved in academic initiatives, but it organizes seminars, webinars and tailor-made economics classes for students, journalists, businesspeople and professionals who wish to better understand the relevance of economics for their daily lives and activities.
Economics matters and needs to be presented in a fashion in which the link with reality is clearly visible. In this sense, we look not only at theoretical economics but also at policy making, with an emphasis on the unintended consequences generated by political actions. Visit https://marketedu.me/.