KUALA LUMPUR (Nov 17): Non-profit organisation Khazanah Research Institute, which is sponsored by sovereign wealth fund Khazanah Nasional Bhd, says that the subsidy system in Malaysia needs reforms, and should be replaced by targeted cash transfers like Bantuan Rakyat 1Malaysia (BR1M).

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

“Subsidies are not the most efficient way of helping people,the money spent for 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 today.

The report also estimated that in 2013, less than 23.8%, or RM 5.6 billion of the entire fuel subsidy, went to households and the remaining RM 17.9 billion or more went to businesses and corporations, and only 22% of the entire energy subsidy went to households.

“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 the high-income households, who get about 80% of the subsidies,”said Khazanah Research in its report.

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

The research report reveals 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 and 62% of a active Employee Provident Fund’s members earn less than RM2,000 per month and 96% earn less than RM6,000.

The research also reveals that by global standards the country’s housing is expensive at 5.1 times annual median income – it ought to be three times. “Our houses on average cost much more than three times annual median income. In median income terms, our houses are more expensive than those in Ireland and even Singapore,” said the report.

Among other policy recommendations made in the report were that truly affordable housing be provided for the people, the prioritisation of the development of the northern states, corridor initiatives to raise households incomes, compulsory advertising of the true annual percentage rate (APR), the enforcement of competition law,the acceleration of the Education Blueprint and trade and investment policies that are geared to promote high value-add industries that create high paying jobs.

The  report also recommends 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 pointed out that this is not the case.

“In the case of TPPA it is still being considered and negotiated, so we have to see its final terms before commenting on it [the TPPA], in aspect of the terms of RCEP we [Khazanah Research]  are very clear on it, we are not against the TPPA and it is not a matter of one [agreement over]the other,” said Nor Mohamed.