Friday 29 Mar 2024
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THE 11th Malaysia Plan (11MP) will prioritise efforts aimed at reducing inequality in the country, says Minister in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar.

The holistic economic development blueprint for 2016-2020 will include more measures to address the bottom 40% of households and ensure that income disparity does not widen.

In an interview with The Edge, Wahid says the government is conscious of criticism on the ground that the country’s economic progress is not being felt by the people, particularly those in the bottom 40%.

wahid_60_1046He points out, however, that “inclusive” growth has always been high on the government’s agenda. While efforts so far to reduce inequality in income and wealth have produced results, he admits that it can be improved further.

“Our five-year development plans have always been based on inclusive growth. In the 10th Malaysia Plan (2011-2015), that was reinforced further with the New Economic Model (NEM) with the three core components of high income, inclusiveness and sustainability.

“As we move to the 11MP, we believe that the NEM is still relevant, but in terms of prioritisation, we will prioritise the inclusiveness and sustainability element above ‘high income’ — not because high income is not important, but because there is already momentum generated there,” says Wahid.

“By focusing more on inclusiveness and sustainability, this is where we are going to balance the needs of the capital economy and the people economy — essentially, what this means is that we achieve economic progress [that is] felt by the people.

“This is typically in terms of better business and employment opportunities, which will then translate into higher income for households, and with that, better access to education, healthcare and a better environment overall,” he adds.

The 11MP is currently being drawn up by the Economic Planning Unit, of which Wahid heads. People are watching for clues as to how it may differ from the previous five-year plans given that it is the last push before the country’s 2020 target of achieving high-income nation status.

The 11MP is expected to be unveiled by Prime Minister Datuk Seri Najib Razak in mid-2015.

“People have asked about how all these numbers [we have achieved so far] translate into the economy. Firstly, if you were to look at the broader level and measure the amount of wages that we pay as a percentage of GDP (gross domestic product), this has improved from 29.3% back in 2008 to 33.6% in 2013, and that has obviously translated into higher household income as well,” says Wahid.

He points out that the optimal level for Malaysia is about 40%, but this has to be reached gradually — not by 2020 — to ensure that the increase in wages is supported by increased productivity. “It’s a medium to long-term target. We never intended to achieve it by 2020.”

As for the median household income in Malaysia, he says this has increased from RM2,841 in 2009 to RM3,626 in 2012. It improved further to RM4,258 in 2014, based on the preliminary 2014 Household Income and Expenditure Survey by the Department of Statistics.

classhouseholds_60_1046

“The survey is still ongoing, but we are comfortable with mentioning this 2014 figure because the sample size that we’re using is actually double that of the 2012 survey. The point we’re making is, there is continued improvement. Whatever we said we were going to do, whatever numbers we have at the macro level, they are actually being translated into income being achieved at the household level,” Wahid remarks.

But critics point out that a median household income of RM4,258 means that half of the households in Malaysia are earning below that threshold. “In essence, almost half of Malaysian households are still struggling to make ends meet,” Institut Rakyat executive director Yin Shao Loong was reported to have said last month.

As things stand, the government gives out cash transfer assistance through the 1Malaysia People’s Aid (BR1M) scheme to families earning below RM4,000 a month.

“Some people may argue that the growth from RM3,626 [in 2012] to RM4,258 is not good enough ... but that is still a growth rate which is actually higher than the increase in the cost of living. This is actually more than 8% growth per annum from 2012 to 2014. And if you look at the bottom 40% of households, it (average income) has improved from RM1,847 in 2012 to RM2,312, which again, suggests an increase of well above 8%,” says Wahid.

“Having said that, obviously, RM2,312 is still low and it is our intention to move that up further. But as I said, we can’t double [income] overnight without any [corresponding increase] in productivity.”

The household income figures he cites include the impact from the government’s cash transfers to the people.

Wahid says there are three reasons why household income, particularly in the bottom 40% of households, has managed to increase.

“First, the Economic Transformation Programme resulted in more job opportunities and better income-paying jobs. Second, the introduction of a minimum wage [in 2013] of RM900 in Peninsular Malaysia and RM800 in Sabah and Sarawak. And third, cash support like BR1M. The BR1M component is small, but it does add up.”

Meanwhile, his advice to people in 2015, the year the Goods and Services Tax takes effect, is: “Continue to invest. Continue to consume. And continue to live within your means — that’s actually very important.”

11MP_60_1046The World Bank’s biannual economic monitor report on Malaysia, released last week, observes that while inequality in the country has declined in recent years and is lower than in some other Asian countries, it remains high compared with the high-income economies it aspires to emulate such as the US, Australia and Japan.

“More progressive taxes, with higher tax rates for the upper-income brackets, and more generous and targeted social safety nets can help reduce inequality further in Malaysia while meeting fiscal objectives,” the report says.

It says Malaysia needs to take on the challenge of moving “aspirational” households (51.1% of the total population or 3.6 million households), now the largest group in society, to the middle class.

The aspirational group — defined as one not at risk of falling into absolute poverty but not sufficiently well off to be considered middle class — has an average income of RM2,120 to RM5,919 per household a month. Only 16% of this group have a post-secondary education compared with 55% of the middle/upper-class group.

“Closing educational gaps in post-secondary education will help aspirational households command higher wages in labour markets and requires not additional transfers, but addressing long-term factors through pre-school enrolments and raising the quality of low-performing schools,” the report suggests.

Khazanah Research Institute’s The State of Households report released last month highlights that when it comes to inequality, addressing wealth inequality is what really counts.

It points to Employees Provident Fund data, which shows that the savings of the top 17,061 members are greater than the total savings of the entire bottom 44% (or 2.85 million members).

“For the top, this is a fraction of their total wealth, but for those at the bottom, it is close to their entire life savings,” the reports says. The savings are unequal regardless of ethnic group, it observes.

 

This article first appeared in The Edge Malaysia Weekly, on 22 - 28 December 2014.

 

 

 

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