My Say: Rising living costs: More help to come from Budget 2017?

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This article first appeared in Forum, The Edge Malaysia Weekly, on July 11 - 17, 2016. 


In a few months’ time, the federal government will table its new budget in Parliament. And with all that is happening globally and domestically, measures in Budget 2017 will certainly be something to look forward to by both businesses and the people.

Indeed, global and domestic economic uncertainties are fanning anxiety among just about everyone. Financial market volatility arising from the uncertainties in China, Europe and the UK have taken a veritable toll on global stock and currency markets as well as business and consumer sentiment. Fears of drastic policy changes after the next presidential election in the US are also causing jitters in business and policymaking circles.

As always, for a typical Malaysian, nothing is more crucial than measures in the federal budget that can help ease his or her financial burden. Rising living costs have dented consumers’ enthusiasm for spending in recent times. While the Consumer Price Index (CPI) continually registers benign statistics (averaging 2% to 3% per annum), the rising cost of basic consumer goods (for example, food) and increasing financial burdens (especially for those living in urban areas) exert downward pressure on disposable incomes and temper discretionary spending habits.

Hence, one of the priorities in Budget 2017 is probably to provide measures that can help keep prices of basic consumer goods reasonable. Indeed, some general observations have been made over time: Firstly, prices of consumer goods can vary considerably from one place to another. Different states experience different rates of inflation.

Prices in urban and rural areas can be significantly different. Even more intriguingly, prices of similar consumer goods can vary from one housing area to another, even within the same geographical area. Prices in Bukit Jelutong where I live, for instance, are significantly different from other parts of Shah Alam for the same items. It is quite obvious that some businesses are taking advantage of the lack of information on prices of basic consumer goods and are charging higher to boost their profit margins.

Secondly, despite all the efforts undertaken, prices of basic consumer goods are still on the upward trend, especially post-implementation of the Goods and Services Tax (GST). Take food, for instance. Statistics reveal that on average, food, which represents a hefty 30% of the weight in the CPI basket, contributed about 60% of the increase in Malaysia’s inflation rate in the past four months of this year.

And although the headline CPI rose by an average of 3% during the period, food cost (measured by the CPI’s subindex) increased at a higher pace of 4.6%. The data also shows that there is apparently not much difference between the price increases of food items consumed at home and outside (restaurants) — both rose an average of 4.6% in recent times.

Comparing this with other countries reveals a more interesting fact. Advanced countries, such as the US, the UK and Australia, registered slower increases in food prices over the past few years. Between 2013 and 2015, the US food price index rose 1.9% while the UK’s and Australia’s indices grew 0.4% and 1.4% respectively. When compared with our regional peers, Malaysia’s average food price growth in the same period exceeds Singapore’s 2.3% and Thailand’s 2.9%.

Given these developments, monitoring prices of consumer goods should be prioritised not just in Budget 2017 but also in future budgets. In this regard, the Ministry of Domestic Trade, Cooperatives and Consumerism’s proposed new mechanism to replace the existing system, which involves examining the net profit margin of businesses in Malaysia from Jan 2, 2015, to June 30, 2016, following the implementation of the GST, should be given serious attention. In particular, stricter enforcement is necessary to ensure that the man in the street is protected from unscrupulous traders.

High medical costs are another concern that must be addressed by Budget 2017. On the surface, the health index’s contribution to inflation looks rather benign over the years. Bear in mind, however, that this is partly because of the minuscule weight of this subindex, which is less than 2% of the total CPI. This essentially means that a typical Malaysian spends less than 2% of his or her income on healthcare, including medical services, medication and medical equipment. An individual with an income of RM3,000 per month, for instance, will spend less than RM60 per month on medical expenses.

As we know, this is hardly the case for those living in urban centres, especially those not enjoying medical coverage from their employers. An example can illustrate this further: A box of Cozaar, a popular product used for the treatment of high blood pressure, costs roughly RM125 for a month’s supply, while a box of Crestor, a well-known statin for the treatment of high cholesterol, costs RM160.

The health subindex’s low weight is presumably due to the low cost of public medical facilities. Indeed, government hospitals provide cheap medical treatment and medications for the public, despite them having to wait in long queues to receive treatment. For just a few ringgit, one can get medicine similar in quality to those dispensed by private hospitals. Indeed, many Malaysians have benefited from this, and more and more people are willing to wait in long lines to get medications from government hospitals.

But most of the urban middle class would opt for treatment at private medical institutions, which is clearly more expensive than that at public hospitals. This is because the waiting time at the latter is much intolerable, especially for those who have hectic work schedules. For these people, therefore, the 1.3% weightage in the CPI cannot be applied.

But with rising medical costs, the middle class needs even more help to pay for private treatment. In recent times, outpatient service charges have risen 5% to 6% year on year while private hospitals have increased their prices by 4.5% to 5.5%, compared with only 1% to 3% in early 2014. Similarly, dental costs rose an average of 9% in the first four months of the year. Again, these are the average increases for the whole of Malaysia. Urban centres would presumably experience even higher rates of increase.

Given such price increases, it is worthwhile to consider measures to help the middle-income group secure medical insurance as a safety net for their future. In this regard, allowing withdrawals from the Employees Provident Fund (EPF) to purchase basic medical insurance or critical illness plans would be a good measure. After all, medical insurance plans are now attached to investment instruments (that is, investment-linked products).

Policyholders can benefit from not only their coverage but also their investments over the years. Why not allow EPF withdrawals for the purpose of insuring against future healthcare costs and increasing their safety net? After all, withdrawals are allowed for the purpose of investing in unit trusts all these years. By doing so, the government will also be able to economise on public health spending.

Nor Zahidi Alias is chief economist at Malaysian Rating Corp Bhd. The views expressed here are his own.