KUALA LUMPUR: Non-profit organisation Khazanah Research Institute, which is sponsored by sovereign wealth fund Khazanah Nasional Bhd, said the subsidy system in Malaysia needs reforms, and should be replaced by targeted cash transfers like the Bantuan Rakyat 1Malaysia (BR1M).

In its inaugural publication entitled The State of Households launched yesterday, Khazanah Research said the country’s most expensive subsidy, which is energy, is regressive and favours businesses over households, and rich households over the poor.

“Subsidies are not the most efficient way of helping people. The money spent on subsidies could have been better allocated in more productive sectors that improve economic growth, or development projects that are better targeted at helping vulnerable groups,” Khazanah Research managing director Datuk Charon Mokhzani told reporters at the launch of the report.

The report estimated that in 2013, less than 23.8%, or RM5.6 billion of the entire fuel subsidy, went to households and the remaining RM17.9 billion or more went to businesses and corporations.

“On average, each household receives an annual subsidy of RM625 per year for electricity and RM885 per year for fuel, but most of this is enjoyed by high-income households, who get about 80% of the subsidies,” said Khazanah Research in its report.

Charon said Khazanah Research will be publishing a more detailed policy recommendation for fuel subsidies to be gradually replaced with targeted cash transfers, such as BR1M. It is to be tabled to the government within the next six months.

The report also revealed that the country’s average monthly household income is RM5,000. However, the median household income is less at RM3,626. And 74% of household income is less than RM6,000 per month, and 55% less than RM4,000 per month.

For individuals, the median salary and wage is RM1,700 per month, with 62% of active Employee Provident Fund members earning less than RM2,000 per month and 96% earning less than RM6,000.

The research also found that by global standards, the country’s housing is expensive at 5.1 times annual median income (it ought to be three times).

“In median income terms, our houses are more expensive than those in even Singapore,” said the report.

The report also recommended that the Regional Comprehensive Economic Partnership (RCEP), a proposed free trade agreement (FTA) which is being negotiated among Malaysia, Brunei, Cambodia, Indonesia, Laos, Myanmar, the Philippines, Singapore, Thailand and Vietnam, would be most beneficial to the country.

When asked if the RCEP should supersede the Trans-Pacific Partnership Agreement (TPPA), another FTA which is currently being negotiated, Khazanah Research chairman Tan Sri Nor Mohamed Yakcop said this is not the case.

“The TPPA is still being considered and negotiated, so we have to see its final terms before commenting on it. We (Khazanah Research) are not against the TPPA and it is not a matter of one [agreement over] the other,” he said.

This article first appeared in The Edge Financial Daily, on November 18, 2014.