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Making Progress

Published: Tuesday October 14, 2014 MYT 12:35:00 PM
Updated: Tuesday October 14, 2014 MYT 3:38:38 PM

Malaysia’s middle class challenge

IN Weberian socio-economic terms, the middle class is the broad group of people in contemporary society that falls socio-economically between the working and upper classes.

In February 2009, The Economist announced that over half the world’s population now belonged to the middle class. It characterised the middle class as having a reasonable amount of discretionary income, claiming that roughly a third of their income, after paying for basic food and shelter, is left for discretionary spending. Discretionary income allows people to buy consumer goods, improve their health care, and provide for their children’s education. 

Most of the emerging middle class consists of people who are middle class by the standards of the developing world but not developed one. Their income does not match developed word status, however, the percentage of discretionary income does. By this definition, the number of middle class people in Asia exceeded the number in the West sometime around 2007 or 2008.

In Malaysia, according to the statistics department, the median income of the middle 40% of Malaysian households is RM4,372 a month. This can be considered the middle income group or Malaysia’s middle class. I accept that the middle class has felt the pressures of growing cost of living as prices of essential items like food and fuel have increased over the past few years.

Globally, rapid changes have also taken place in emerging economies like China, India, Brazil, Russia and Indonesia. All these countries have seen rapid economic advancement and a burgeoning middle class. This has increased the demand for essential and non-essential items thus creating more demand with the supply not able to keep up.

A direct result of this rapid change in global society and consumption patterns is the amount Malaysia spends on subsidising fuel, food and other essential items. The allocation for subsidies in Malaysia has increased 14 times from RM1.65bil in 2002 to RM23.5bil in 2013, solely to maintain low fuel prices. In 2014, the Government spent over RM40bil (close to 20% of the National Budget) on subsidies of fuel, food and other essential items. Hence, a new method is needed in ensuring that the Government’s assistance and engagement with the middle class and lower income groups are sustainable and economically propitious.

The middle class are important to every society because they have graduated from the lower income group. They are resilient, ambitious and tenacious. At the same time, the middle class or middle income group have a great propensity towards social and economic concerns of the lower income group because they themselves hail from economically challenging backgrounds. Hence, the middle class have always played a pivotal role in the political, economic and social development of any society.

Malaysia’s middle class are also more aware politically and have become more assertive in propagating their political views. Prior to the 12th general election in 2008, the middle class formed the voting block for parties like MCA, MIC and Gerakan. That is the reason these Barisan Nasional component parties performed well in urban areas.

However, the 13th general election in 2013 showed that the middle class had pulled away from Barisan. In the Klang Valley, Kinta Valley, Penang, Seremban, Kota Kinabalu and Kuching, Barisan did not perform well at all and almost all the Parliament seats in these areas were won by Pakatan Rakyat parties.

The extensive use of social media and innovative campaigning methods by the Opposition coupled with an aggressive campaign, many traditional Barisan voters in these urban pockets were drawn to the Pakatan.

Barisan must find a new nexus when it comes to dealing with the middle class. In this regard, Prime Minister Datuk Seri Najib Tun Razak has set the right tone with Budget 2015.

The middle class will enjoy significant tax breaks with the tax-free income threshold raised from RM3,000 to RM 4,000 a month. Also, the rate of personal income tax has been reduced to ensure more money finds its way into the pockets of Malaysia.

The 1Malaysia People’s Assistance Scheme (BR1M) has also been increased and staggered over three payments a year. The affordable housing schemes have also been rationalised while the 1Malaysia People’s Housing Scheme (PR1MA) has also introduced a rent-to-buy scheme for those who are unable to obtain financing facilities to purchase homes.

Beyond that, basic necessities like food items, RON95 Petrol, medication and other items that are essential to everyday living will be exempted from the Goods and Services Tax (GST). The Youth Housing Scheme will benefit young couples earning less than RM 10,000 a month to purchase their first properties and they will also enjoy discount on stamp duty and loan instruments. Further to that, the Government will also provide a financial assistance of RM200 a month for the first two years to assist in the loan repayments.

Furthermore, the subsidy rationalisation measures that will be introduced will ensure that subsidies are targeted and benefit only those who need subsidised food and fuel. The current “one-size fits all” model is not only economically unsustainable but also promotes wastage and overuse. As resources grow scarce we must become more efficient as a society and subsidy rationalisation is the correct way forward.

Also, I believe that wages must increase. In this regard, the private sector must play its part and meet the Government halfway as we endeavour to become a high-income nation. Many conglomerates in Malaysia continue to enjoy record profits but shareholders remain unwilling to share those profits with their employees. That is one of the main reasons why wage growth has been tepid at best. The onus of transforming Malaysia into a high-income nation is not solely the provenance of the Government. The private sector must be an honest partner ready to play its part.

Malaysia’s middle class continues to play an important role in the nation’s development and I am a proud member of this group. Barisan component parties must also play its part in engaging this group and highlighting their concerns besides explaining the goodies that the Government has allocated to ensure their quality and standard of living increases as well.

> The views expressed are entirely the writer’s own.

Tags / Keywords: Budget 2014, finance, business, middle class, income

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