Cover Story: Income gap between rich and poor Chinese widens

This article first appeared in The Edge Malaysia Weekly, on November 6, 2017 - November 12, 2017.
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MALAYSIANS would be familiar with the fact that the bumiputeras form the biggest proportion of households in the bottom 40% in terms of income. Data from the Economic Planning Unit for 2014 shows that bumiputera households accounted for 44.7% of those in the B40 category, defined as households with an income level of RM2,629 and below.

The Chinese comprised 28.02% of B40 households and the Indians, 38.71%.

However, what many are unaware of is that the intra-ethnic income gap is the highest among the Chinese compared with the bumiputeras and the Indians.

Not only that, this gap has widened for specific groups.

A comparison of the household income and expenditure data of 2016 with that of 2014 shows that the income gap, which is the ratio of the household income of the top 20% (T20) to that of the B40, remained unchanged among the bumiputeras but widened among the Chinese and in the rural areas, and narrowed among the Indians and urban households.

As the chart shows, for every RM1 the bumiputeras in the B40 earned, those in the T20 earned RM5.30. The gap remained the same in 2016.

Among the Chinese, however, the gap increased from RM5.80 in 2014 to RM6 in 2016. This is the only ethnic group that experienced a widening of the income gap — the biggest compared with the others — between 2014 and 2016.

Among the Indians in the same period, the income gap narrowed from RM5.50 to RM5.20, and was the smallest among the ethnic groups.

What is significant, says Dr Muhammed Abdul Khalid, chief economist at policy research consultancy DM Analytics, is that the income gap in Malaysia has not narrowed since 2014 despite the introduction of key measures to achieve a better distribution of wealth.

The measures include BR1M (Bantuan Rakyat 1Malaysia), an increase in the minimum wage and a reduction in the personal income tax rate.

“In fact, the share of income for the B40 actually decreased from 16.8% in 2014 to 16.4% in 2016,” Muhammed says.

“This will make achieving the 11th Malaysia Plan target of 20% share for this group more difficult.”

Another aspect of the issue that bears emphasising is that there is no cross-cutting implementation mechanism that addresses the consequences of these inequalities, says Datuk Dr Denison Jayasooria, principal research fellow at UKM’s Institute for Ethnic Studies.

The intra-ethnic income gap shows just why such a holistic response to the problem is important.