KUALA LUMPUR: As the government raises the amount of cash handouts to low-income Malaysians, there are questions as to how Putrajaya judges who should qualify for the financial assistance and whether the aid actually meets its purpose. Claims by think tank Institute Rakyat that the government could have overpaid the BR1M handouts due to how it calculates the income level of those who qualify for the aid suggest that the practice of paying out the aid has contradicted its purpose as a subsidy targeted at those who really need it.

Economists argue that similar to  not giving out blanket handouts, it is just as important not to assume that all needy Malaysians are the same. Rental costs and food can vary widely between urban and rural areas. These are the two largest components of  monthly expenditure, according to the Statistics Department.

The best known of these handouts is the People’s Cash Aid Scheme or BR1M. There are also aid programmes for those living below the poverty line income, or PLI, currently set at RM800 per month.  No distinction is made between urban or rural households, even though the 2010 national census found that about 71% of Malaysians live in urban areas.

Jayanath Appudurai, who writes on poverty-related issues, suggested that the threshold at which people qualify for BR1M should be different from state to state to account for different income levels and living costs.

According to the Household Expenditure Survey 2009-2010, the average monthly expenditure was RM2,465 in urban areas and RM1,599 in rural areas, said Jayanath. The 2010 figures may  not reflect actual living costs now since fuel subsidies were cut and electricity rates for businesses  raised.

“The average urban household’s monthly expenditure is 1.5 times  the average rural household,” said Jayanath, a former civil servant. He said given that food, clothing, housing and transport constitute almost 65% of average household expenditure, these goods and services could be used  to set  a threshold.

Economist Dr Lee Hwok-Aun said the cut-off point for BR1M should be set according to the country’s median income, or a fraction of median income, to make it responsive to socio-economic conditions.

“Median” income is the country’s total income divided by half. “Mean” or “average” income is the total income divided by the number of households. Lee of Universiti Malaya said the household income at the median is more reliable as an estimate of the “average”, since half of the population earns less and half earns more than this household.

But at the end of the day, said Institute Rakyat’s Yin Shao Loong, no matter how the thresholds are set, cash handouts are a sign that the government has not done a good job of managing the economy.  — The Malaysian Insider

This article first appeared in The Edge Financial Daily, on October 14, 2014.