Misguided: Why the HRD levy must never be wage subsidy

Malaysiakini

2 days ago

LETTER | I refer to the recent proposal by Human Resources Minister Steven Sim to permit employers to utilise up to RM2 billion from the Human Resources Development (HRD) levy funds to pay the salaries of newly hired university and technical and vocational education and training graduates beginning Sept 1.
Frankly, I am shocked. This proposal represents a fundamental departure from the original mandate and philosophy of the Human Resource Development Corporation (HRDCorp) - a mandate clearly enshrined in the Pembangunan Sumber Manusia Berhad (PSMB) Act 2001.
It deserves serious scrutiny because it risks eroding both the integrity of the levy and the long-term development of Malaysia's human capital.
Under Article 3 of the PSMB Act, the HRDCorp's principal purpose is to promote the training and development of employees, apprentices, and trainees through the imposition and utilisation of a training levy.
Article 22(2)(a) further underscores that the levy must be expended only for activities that 'promote, develop and upgrade' the skills of employees, and for the establishment or maintenance of training infrastructure.
In other words, the levy is not - and has never been - intended as a wage subsidy. It is a training fund designed to promote structured, continuous, and meaningful upskilling of the Malaysian workforce.
Allowing these funds to be diverted towards paying salaries would effectively sever the vital link between levy contributions and training outcomes - a link that forms the very backbone of levy-based training systems across the world.
It is arguably an ultra vires (beyond the powers) use of funds under the PSMB Act, which recognises the levy as a ring-fenced training fund.
If the intention is to support graduate employment, then this should be done through normal fiscal channels, not through the misappropriation of a specialised fund established for a very different and critical purpose.
Fundamental flaws
There are several fundamental flaws in Sim's proposal. First, it sets a dangerous precedent: once the training levy is converted into a wage-subsidy mechanism, reversing the policy becomes politically difficult.
The HRDCorp risks morphing into a politically driven institution rather than a professional body tasked with building workforce capabilities.
Second, it will discourage employers from investing in genuine, future-focused skills development. Faced with the option of using levy funds to offset payroll costs, many companies - particularly small and medium enterprises - will logically opt to minimise training expenditure.
In the end, real upskilling programmes will be crowded out.
Third, it sends precisely the wrong message to graduates. The core challenge facing Malaysian graduates today is not the lack of a salary, but the absence of practical skills, real-world exposure, and industry-relevant competencies.
What they urgently need are structured apprenticeship programmes, experiential learning opportunities, and industry placement schemes - not wage subsidies that do little to build capability.
Damaging longer-term impact
In the longer term, the impact will be even more damaging. Training budgets will shrink, high-quality upskilling programmes may be postponed or cancelled, and Malaysia's overall workforce competitiveness will decline.
The HRDCorp was established specifically to safeguard against this scenario by ring-fencing training funds. Once that ring-fence is breached, the sustainability of the entire human capital development model is seriously compromised.
Most importantly, graduate unemployment is a structural problem linked to the quality of higher education and its weak alignment with industry needs. It cannot be solved sustainably by permitting companies to use training funds to pay salaries.
That would merely shift the burden from the public budget to the levy while leaving the underlying problems untouched.
In a nutshell, Sim's proposal contradicts not only the letter but also the spirit of the PSMB Act. It undermines the long-term development of Malaysia's human capital by diverting resources away from genuine skills upgrading.
If the government wishes to subsidise graduate employment, it should do so transparently through the general fiscal budget - not by dismantling a training levy system that was designed to build a competitive and highly skilled national workforce.
The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.