PUTRAJAYA needs to relook at its income categories by introducing new categories of T30, M50 and B20 to effectively reduce income inequality and tackle poverty, said a government-linked think-tank.

These categories were proposed by Khazanah Research Institute (KRI) today as part of their study of the government’s practice of classifying Malaysian households based on their income levels.

The study’s release follows calls from various quarters for the government to review its poverty line as the current metric is obscuring incidences of hardcore poverty.

Putrajaya currently divides all Malaysian households into “top 20”, “middle 40” and “bottom 40” according to their income levels, and this guides how the government dispenses welfare aid. 

KRI’s researchers argued that targeting aid solely towards the B40 group is both “too narrow and too wide”, as those in this group need different types of assistance.

“The current B40 demarcation would overextend the coverage as a significant proportion of those in the B40 may not require the same type of assistance as those in absolute poverty,” KRI said in a statement today.

The conclusions were from a study authored by Hawati Abdul Hamid, Gregory Ho Wei Son and Suraya Ismail, titled Demarcating Households: an Integrated Income and Consumption Analysis.

The authors said the B40 category doesn’t account for differences in family size, geographic location and spending patterns even among households.

“Different households in the same income spectrum purchase different types of goods even within the same category,” they said.

Households only able to meet their basic needs of food, clothing and housing were in the bottom 20%.

“As households became richer, they can afford to consume a more diverse set of goods and services than those in the bottom 20%. However, those in the middle 50% still regularly make trade-offs in consumption decisions.”

By redrawing the households classifications, Putrajaya would be able to craft policies that are more effective in dealing with each groups’ specific challenges.

“A more focused approach such as direct cash aid and subsidies would need to be limited to the most vulnerable and neediest, which are the B20.”

The M50, who are considered the middle class, would benefit from policies that empowered them and gave them access to more opportunities to achieve a higher living standard than what they currently have.

“The measure of wellbeing is less about a household’s level of income. It should be more about the diversity of things that wealth can buy,” said Ho, one of the authors.

“This implies a different approach to policy than a strict focus of income as (a measure of) wellbeing,” Ho said. – September 23, 2019.