PETALING JAYA: The move to review income classification to ensure effective delivery of assistance is timely as many are affected by the adverse effects of the Covid-19 pandemic and economic instability of recent years, say experts.
On May 19, Economy Minister Rafizi Ramli announced that a new approach using household nett disposable income metrics would be implemented in January 2024 as an economic structuring measure for a more focused distribution of targeted subsidies.
Economist Prof Emeritus Datuk Dr Zakariah Abdul Rashid said about 70% of Malaysian households are potentially earning below the decent living wage.
He said this after factoring in data from Bank Negara’s report in 2018.
“After considering the impact of the pandemic and also the current economic situation, I estimate that around 70% of households are living below the decent living wage.
“We’re facing a welfare crisis as a lot of people can’t live decently, including some of those who are currently in the M40 group,” he said.
In 2018, Bank Negara introduced the concept of “living wage”, the minimum income needed for a household to participate in society, personal and family development, and freedom from severe financial stress.
Prof Zakariah said the government’s move to review the income classification is timely as it would help to address the welfare issues faced by needy groups.
However, the authorities must expedite the data gathering of household income in order to come up with a better socioeconomic classification system, he said.
Currently, the Malaysian population is categorised in three groups according to their incomes – B40, M40 and T20.
The former executive director of the Malaysian Institute of Economic Research added that reclassification of the household income would help the government implement more effective policies such as targeted subsidies.
“We need to take into account the regions, whether the households are located in urban or remote areas, as well as the size of the family,” Prof Zakariah said.
Malaysia University of Science and Technology Research and Innovation provost Prof Geoffrey Williams agreed, saying that disability and illness as well as the number of dependants should also be considered when determining the category of household income.
“Household size is the main factor. A household of two parents and two adult children all earning minimum wage would fall under M40 even though each one is earning a very low wage.
“If they earned average wages, they would be almost T20, but still individually on normal income levels.
“Another factor is what sources of income to include or exclude, for example wages, side hustles, interest income, rent from property, welfare benefits or even if people are subsidised by relatives or receiving alimony,” he said.
However, Prof Williams thinks that the household income structure could be problematic because it could become an instrument for social engineering that favours a particular household structure over another.
“A system like the tax system that is focused on individual income is often better and more empowering.
“Payments to women made directly and based on their individual income empower them more than payments made to the head of the household, usually a man, based on collective income,” he said.
The integrated database introduced by the government, known as Pangkalan Data Utama (PADU), can be used to target welfare protection and provide support at an individual level, he said.
“It is essentially a combination of different sources such as LHDN (Inland Revenue Board of Malaysia), the bantuan (assistance) schemes, the welfare department and so on.
“The national identification number can be used to connect the databases, but it then needs to be cross-checked.
“The new database can be used to target welfare protection and support at an individual level, which is better than the current system.
“For example, a Universal Basic Income and Universal Basic Pension can be introduced to target income support for anyone below the living wage level on an individual level,” Prof Williams said.
Federation of Malaysian Consumers Associations (Fomca) chief executive officer, Datuk Paul Selvaraj said that while the establishment of PADU is welcomed, the government should not delay giving assistance to those who are in need.
“There are several existing databases that the government can use to identify underprivileged individuals. These include e-Kasih, which is under the Women, Family and Community Development Ministry,” he said.
“The government should not wait. Assistance must be given to the needy groups using the current databases while waiting for PADU to be launched.
“This is because the cost of living has increased exorbitantly and is affecting the poor people,” he added.
When announcing the new approach, Rafizi said over 200 data sources have been compiled, including the federal and state governments and zakat bodies.
The integrated system will provide information that includes the number of households, household income, location, number of vehicles owned, record of assistance received from government departments and other information to determine the disposable income of eligible households.