Households earning less than RM2,000 ‘very vulnerable’ to economic shocks

KUALA LUMPUR (Oct 16): Malaysian households earning less than RM2,000 spent 94.8% of their income in 2016 on consumption items and everyday essentials, according to think tank Khazanah Research Institute’s (KRI) latest report.

What is worrying is that their remaining income after accounting for inflation was only RM76 in 2016, down from RM124 in 2014, according to KRI’s report on “The State of Households 2018: Different Realities” released yesterday. This group is potentially “very vulnerable” to any economic shocks or emergencies, it added.

This is in contrast to households earning above RM15,000 per month which had RM13,100 in income remaining in 2016, but still down from RM14,458 in 2014. Households earning around the median household income of RM5,228 per month in 2016, meanwhile, spent more than 67% of their income on household expenditure, up from 65.1% in 2014. They had RM1,811 in income remaining, down from RM1,990 in 2014.

KRI also noted that between 2014 and 2016, households with an income level below RM5,000 are cutting back on actual consumption of food despite spending more money on it given high food inflation. “For richer households, the shifts are more lifestyle-oriented — from expenditure on food at home to food away from home, and on cultural and entertainment services,” it said.

On whether removing subsidies such as the 1Malaysia People’s Aid (BR1M) payouts would have a huge impact on the lower-income group, the report’s lead author Allen Ng expects it to be minimal in the longer term. “We have to wait for the actual announcement from the government on cash transfer policies. But to put things into context, BR1M is about RM6 billion but the total household income is much larger than that, about RM400 billion,” he told reporters at the launch of KRI’s report yesterday.

“So it (BR1M) is actually not that important [a] factor when it comes to the longer-term income growth of the Middle 40 (M40) or Bottom 40 (B40). Cash transfers and subsidies are band-aids, but what we need are actually longer-term solutions for the vulnerable households,” Ng added.

The third edition of the State of Households 2018 report gives an overview of the state of Malaysian households and reflects the diverse economic realities of almost seven million Malaysian households and the challenges they face.

This article first appeared in The Edge Financial Daily, on Oct 16, 2018.

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