Based on the household income classification in 2020 by the Department of Statistics Malaysia, households with incomes below RM4,850 per month are categorized as B40, while M40 households have incomes ranging from RM4,851 to RM10,970. On the other hand, households with incomes exceeding RM10,971 fall into the T20 category. The T20 group is further divided into two subcategories, namely T1 – RM10,971 to RM15,040 and T2 – RM15,041 and above.
According to the Department of Statistics Malaysia, previously, household income components were categorized into four (4) segments, which include salaried income, self-employment, property and investment, and current transfers. The percentage of salaried income was significantly higher than the other three components.
Recently, the government has announced the discontinuation of electricity tariff subsidies for residential users with high electricity consumption, and this change will be implemented shortly. Previously, Lembaga Tabung Haji had set the Hajj payment for the year 1444H based on household income classification, with the B40 group paying RM10,980, the same rate as last year. The M40 group, on the other hand, is required to pay RM15,980, which is an increase of RM3,000 per person compared to the previous year. Meanwhile, the full payment for Hajj expenses for the T20 group is RM30,850.
Additionally, those who performed their Hajj in a fast lane group are required to make full payments. Considering several current situations, the author expects the possibility of more subsidies being withdrawn, for example, in the case of diesel and RON95, which also have the potential to be abolished, especially for the T20 group.
However, the author believes that the reclassification of household income should be carried out prior to subsidies rationalisation being implemented including those involved with the T20 groups. The question that arises is whether all T20 individuals currently fall into the wealthy category or they are actually not?
For example, in a household, in which the husband is the sole bread winner is employed with an income of RM12,000. He works in the private sector, resides in Kuala Lumpur, and provides for his wife and five children. According to the current classification, he falls into the T20 household income category. However, what is the estimated balance of his net income after deductions for Income Tax, EPF, and SOCSO contribution? The estimated net income balance ranges from RM9,000 to RM10,000.
With this balance, if we deduct his rough estimated household fixed expenses such as a housing loan of RM1,500, car instalment of RM800, utility bills of RM500, RM500 for fuel, RM200 for tolls, RM600 for monthly family insurance premium, RM500 for credit card payments, the remaining balance is approximately RM4,000 to RM5,000. This balance will be used for daily necessities such as groceries, expenses, and providing for five schooling children including transportation, food, schooling necessities expenses, and alimony.
This calculation does not consider other debts such as personal loans, PTPTN repayments, periodic car servicing, upcoming road tax and car insurance payments, emergency savings, and more. If we deduct all these expenses, how much will remain in his disposable income? What is the balance in hand a few days before receiving the next pay check? It is not impossible that there may be only a few hundred Ringgit left, or it could even result in a deficit.
If subsidies are withdrawn for households like in this example, expenses will significantly increase, but the salaries and increments received do not align with the rising cost of living. The existing financial situation is already challenging, and without subsidies, the burden will become even more substantial, ultimately placing an enormous strain on this group.
Therefore, not all T20 individuals are affluent, and based on the existing classification, the T20 households with incomes ranging from RM11,000 to RM15,000 are can barely cover their monthly living expenses. Even with savings, the amount is not substantial. This is because of the income and salary increment do not align with the rising cost of living and the increase in prices of goods that are currently taking place. In fact, the latest inflation rate in Malaysia in April 2023 has risen to 3.3%.
Considering the current situation of depreciating RM, compounded by climate change and weather uncertainty, it is highly likely that commodity prices especially food items will continue to rise. It is due to the higher demand over supply that can potentially causing prices to increase amid competition to acquire these goods from the same sources.
Therefore, the author believes that there is a need to reevaluate the classification of household income to ensure that it genuinely reflects the actual realities on the ground. The government should also contemplate income classifications that factor in the number of dependents, particularly households with children who are still in school or pursuing higher education. Undoubtedly, the expenses vary significantly between those with one child and those with five children who are still studying. This classification should also consider the sudden rise in the cost of living and the increase in commodity prices currently occurring.
In conclusion, prior to the abolishment of electricity subsidies and other subsidies for the T20 segment, it is advisable to review the classification of households within the T20 category to ensure that the subsidy rationalisation exclusively targets the right group of deemed feasible disposable income.
Assoc. Prof. Dr. Anuar Shah Bali Mahomed
Deputy Dean, School of Business & Economics
UPM/The Future Research
27 May 2023