SHAH ALAM: The trend of an ageing population combined with an increasing urbanisation rate may see the country looking at higher tax rates to fund an increasing demand for health, social welfare and pension systems in the coming years, according to economists.
Bank Islam Malaysia Bhd
chief economist Dr Mohd Afzanizam Abdul Rashid pointed out that an ageing population has implications in terms of how resources would be used as well as a negative effect on productive capacity.
“From a textbook argument, an ageing population may impact fiscal policy and is commonly associated with higher taxes going forward,” Mohd Afzanizam told StarBiz.
Based on the “Key Findings Population and Housing Census of Malaysia 2020” or MyCensus 2020 launched by Prime Minister Datuk Seri Ismail Sabri Yaakob, 6.8% of Malaysia’s population is aged 65 and above, 69.3% of working age (15 to 64 years) and the balance 24% is young (newborn to 14 years).
“Senior citizens or those aged 60 and above account for 10.4% (3.4 million), compared with 8% (2.2 million) in 2010. The young age-group showed a drop, from 27.6% in 2010 (to 24% in 2020),” said Ismail Sabri.
Based on the census, Malaysia’s population is 32.4 million (compared with 27.5 million in 2010).
According to the Statistics Department, the country’s population grew at a slower rate of 1.7% a year between 2010 and 2020 compared with 2.2% a year between 2000 and 2010.
Meanwhile, the urbanisation rate in Malaysia increased to 75.1% (24.3 million persons) in 2020 compared with 70.9% (19.5 million persons) in 2010.
The population in rural areas declined to 24.9% in 2020 compared with 29.1% in 2010.
However, Mohd Afzanizam noted that in reality, raising or introducing new taxes is a great challenge.
“It will never be a straightforward solution. It is very difficult to raise taxes at a time when the economy is uncertain. In the years to come, we do not know what sort of economic shocks that might happen,” he said.
Dr Yeah Kim Leng, professor of economics at Sunway University Business School said: “Malaysia still has a small, shrinking demographic surplus – we still have a younger population group and it’s still growing, but at a slower pace. We have not encountered what economists call the demographic twist, which will happen when there is an increase in the number of dependent population (those below 16 years old and those above 65).” Economic growth will be more difficult if a country’s population sees an increase in the number of dependents or a rise in the dependency ratio.
“We still have about a decade or so before the dependency ratio starts to increase, and the working population will start to start to decline,” opined Yeah.
He pointed out that an increase in the older age group would mean that the government would needs to focus on looking into their welfare.
“We are already seeing many government programmes implemented to help the vulnerable and those affected by the pandemic, especially because of the disproportionate impact on low income groups, which also resulted in an increase in old age poverty,” said Yeah.
Meanwhile, Centre for Market Education CEO Dr Carmelo Ferlito said the main challenge of Malaysia’s ageing population would be the sustainability of the welfare and pension system.
“Malaysia is still ‘young’ if we compare it with the West, but the trend is set to make it an ageing country. This is due to the process of modernisation which brings higher life expectancy associated with lower population growth,” said Ferlito.
Putra Business School associate professor and economy analyst Dr Ahmed Razman Abdul Latiff pointed out that Malaysia’s Total Fertility Rate (TFR) had continued to decline over three decades, according to the Statistics Department.
Fertility measured by TFR in the country declined dramatically from 4.9 children per woman of childbearing age in 1970, to 1.8 in 2019.
Since 2013, the national TFR was well below the replacement level of 2.1.
“This means we do not have enough children in each household to replace our working population. On top of that, we’re going to have more elderly,” said Ahmed Razman, adding that Employees Provident Fund (EPF) data also paints a “depressing picture.”
Recently, it was revealed that 6.1 million EPF contributors have retirement savings of less than RM10,000, with 3.6 million of them having less than RM1,000.
“I do foresee that the issue of an ageing population is going to become a main agenda for the government to address in subsequent years. It will have great implications in terms of social welfare, and healthcare programmes,” said Ahmed Razman.
Ahmed Razman also concurred that that the increasing urbanisation rate and elderly population would bring challenges in government allocations for social welfare and healthcare.
“There is a possibility that the taxation system will have to be revamped in the future,” he said.
Regarding the increasing urbanisation rate, Yeah said the rural - urban migration will likely continue but “the government needs to do more to have a more balanced development in rural urban areas, in order to help reduce regional disparities and also between different states.”
Yeah also noted that inevitably, increasing urbanisation also results in declining fertility and tend to lead to smaller families.
“The government needs to focus more on issues related to urban congestion and urban poverty, the quality of life and income generating opportunities. At the same time, developmental policies also need to focus on rural areas to enhance the living standards and improve income levels,” he said.
However, Mohd Afzanizam opined that if there is no intervention, the increasing urbanisation rate will create imbalances in terms of economic development between rural and urban areas.
Mohd Afzanizam noted that Statistics Department data showed that Malaysia’s dependency on imports for agricultural commodities increased to 13.7% from 7.3% over 28 years (1987-2015).
In 2020, Malaysia imported RM55.5bil food products compared with RM33.8bil of exports.
The fastest increase in imports compared with exports has led to an increase in the trade deficit of food products amounted to RM21.7bil in 2020, an increase of 24.9% as compared to 2019.
“We need to really re-look the agriculture industry. Our trade deficit in agro food continue to widen every year,” said Mohd Afzanizam.
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