Last month, Khazanah Research Institute published a report entitled “The State of household”. The publication of this report is commendable and timely as it provides a timely insight into the state of household in Malaysia. The report contains details and facts about some of the pressing issues involving Malaysia’s household currently, covering the disparity and distribution of household incomes; household expenditure and the impact of rising food prices; housing affordability and household debt and subsidy reform and the use of cash transfers. The report also examined on the aspects of the Malaysian workforce as well as the Country’s Trade and Investment Policies. In the end, a number of broad preliminary policy recommendations was outlined to tackle the Malaysian household issues. The full report can be obtained through the institute’s website.
Of significant, the report highlights the issue of household income inequality across the country, whereby it states: “Household income inequality is more than an inter-ethnic issue. There is inequality nationally and within each ethic group, there is a pronounced income divide between rural and urban areas, and between genders.” Based on the report, there is an ethnic, urban-rural and gender divide of the three major ethnic groups in the country. Income disparities vary by ethnic group and there is also an intra-ethnic inequality in income distribution.
According to the report, Chinese households are on average the richest, whilst the Bumiputera on the other hand, are the least well-off. Evidence of the widening income inequality can be seen whereby the average income of households headed by an urban Chinese male is the highest, while those headed by Indians and Bumiputeras female in the rural areas are the lowest. However, the income gap between the ethnic groups is lesser than the urban rural income gap. For example, in the rural areas, although the average Bumiputera household income is less than the average Chinese household income, the average urban Bumiputera household income is much higher than those in the rural areas. This explains why young people from the rural area move to towns and cities.
The median household income based on ethnicity shows Chinese earns RM4,643 per month, Indian earns RM3,676 per month, Bumiputera earns RM3,282, and others earns RM2,762 per month. On individual basis, the median monthly salaries and wages per month in Malaysia is RM1,700. This reflects half of all the workers get this amount or lesser. The report reveals that Chinese and Indians have higher proportions of households earning more than RM5,000 per month. The Chinese have proportionately the most households that earn RM10,000 or more per month.
Apparently, this incident of income inequality in the country still occurs, despite the economic growth and increasing corporate profits. The benefits of these achievements were more pronounce in the rich and wealthy household segments of the society. In this regard, the report asserts: “We must put households at the centre of our economic policy. Driving economic growth is important. But so is ensuring the growth in the income of the majority of households – the bottom 74%; and not just growth in corporate profits and the incomes of the wealthy. We are heartened that the Prime Minister in his 2015 Federal Budget speech said that the “people economy” is the “bedrock in prioritising the interests of the rakyat”
A number of broad policy recommendations were outlined to tackle the Malaysian household predicament. Among others the recommendations proposed for the replacement of direct fuel subsidies with targeted cash transfers; provision of truly affordable housing; prioritisation of northern states development; improvement in water and sanitation services; raising household incomes; teaching basic financial literacy in schools; enforcement of competition law; implementation of the Education Blueprint; promotion of industries that are high value-add and create high-paying jobs. One interesting point was made on the subsidy reform, which is currently the concern of the rakyat: “There is scope for subsidy reform as currently the main beneficiaries of subsidies are businesses rather than households. Of that which goes to households, high-income households benefit the most.”
Whilst the broad policy recommendations will be elaborated further by the institute, we are of the view that another measure to be considered is pertaining to the role of the “third sector”, i.e. the voluntary sector. It is imperative for Malaysia to promote a more organise and systematic third sector in order to achieve economic growth with income equality.
Generally, the third sector is defined as the part of an economy or society comprising non-governmental and non-profit-making organizations or associations, including charities, voluntary and community groups, etc. The voluntary sector or some may call it community sector, or non-profit sector is recognised as the third sector in many economic literatures, because of its significant role in working together with the public sector and the private sector to achieve economic growth and to ensure the people’s well-being. The presence of a large voluntary or non-profit sector in some economies is seen as an indicator of a healthy economy. This means that the contribution of the third sector is also recognise as a significant proportion to the Gross Domestic Product (GDP) of many economies. Hence, there are countries which have enacted a dedicated legislation and established a mandated commission to promote the role of the third sector in order to ensure it can play much greater role in the economy, and more importantly to gain public confidence and trust in making their contribution to the sector. For example, mandated commissions were established in Australia (Australian Charities and Not-for-Profit Commission (ACNC) and also in the United Kingdom. With the dedicated legislation and mandated commission, among others, the third sector is recognised as independent from the government and as opposed to private sector, they are driven by values instead of profit motivated in order to achieve social goals, such as to improve public welfare, education, health environment or general well-being of the people.
It is considered timely for Malaysia to establish a more organised and systematic third sector in its economy in order to complement the government commitment to the fiscal rationalisation agenda. Furthermore, as high growth economy does not guarantee high household incomes, let alone equality, it is imperative that the third sector can play a more active and vibrant role in our economy in order to achieve high growth with income equality, in order to ensure that nobody in our society will be left behind in our pursuit to achieve high income economy status by the year 2020.