AS part of the journey on pursuing the “survive to restart” mission, the reclassification of the Malaysian household income is required as the current demarcation is no longer appropriate to promote the economic well-being of the lower-income group.

The current demarcation is misleading to explain the government-targeted policies, as well as to allow the study and comparison of some concrete data on the economic position between and within income classes.

This will help the government in its fully targeted policies towards the B40, the minimisation of disparities between the M40 and tackling the growing issue of income inequality.

In terms of income, the B40 households should be categorised into several income subgroups at a more granular level as each subgroup may differ in needs and involve specific intervention strategies.

For example, the B40 should be subdivided into three – the lower B40 households earning RM900 or less; the middle B40 household earning RM901 to RM1,500 and the higher B40 household earning RM1,501 to RM3,000.

At present, the B40 households are those earning below RM4,346.

While the M40 could be subdivided into the lower M40 household earning RM3,001 to RM6,999 and the higher M40 household earning an income of RM7,000 to RM9,999.

Currently, the M40 are those households with an income level of between RM4,361 to RM9,619.

This will help the reclassified M40 group to fall under the current B40 group to enjoy the required assistance.

That’s why the study on the reclassification made by the Khazanah Research Institute (KRI) will enhance the previous approaches to be completely aimed at the B40 according to the suitability of income concept, household consumption, household sizes and compositions, and geographical diversities.

Not just that, the government has to properly determine and decide on a suitable scale of income distribution within the state or even national level.

The adjustment of household income is needed to compensate for the different sizes and compositions of households and to compensate for economies of scale resulting from household members pooling their income and sharing available resources.

This is because if the current demarcation persists, the unequal distribution of income and assets will make the rich get richer, thus keeping the poor behind.

Considering the movement control order (MCO), this is a good time for Malaysia to properly reclassify the demarcation as the present demarcation generates inequality and distributional issues through the common practices of using the existing classification as mechanisms for policy targeting.

The emphasis on addressing the people’s needs has always been on the B40 which is identified as the poor but it can generally be seen that it did not succeed at all.

It is because of the B40’s relentless struggle to face the high cost of living with rising basic expenses such as housing, clothing, food, and transport despite low incomes.

Based on the 2016 Household Income and Basic Amenities survey, the expenditure on food, clothing and housing accounted for around 56% of the B40’s monthly budget share and their mean monthly income is about RM2,848.

Alas, it would be difficult to achieve the 11th Malaysia Plan (11MP)’s target on increasing the mean monthly income of B40 to RM5,270 by looking at the mean monthly income in 2016.

This is also supported by the Institute for Democracy and Economic Affairs (Ideas) senior fellow Carmelo Ferlito as he said that it is difficult to ascertain the reasons why the “urban poor are poor” and that the B40 group should not be generalised due to its size.

With the emergence of this coronavirus outbreak, the effect will be much greater, not just on household income but also on the economy as a whole, as this pandemic would have a disproportionate impact on smaller companies and vulnerable groups such as low-income individuals and workers.

In a larger sense, the unemployment rate may rise because of business closures and people will be adversely affected during or even after the MCO, as well as lower purchasing power that could potentially hamper economic development.

It is agreed that the economic stimulus package is a positive move to put the money into people’s pocket, but the change needs to be made completely after the battle against the pandemic is over to encourage improved living standards and household economic well-being.

What is more important is after the MCO is lifted the appropriate measures should kick in immediately to help the businesses and individuals bounce back and concentrate on gradually driving the economy after the conditional MCO.

Although it is undeniable that the concept behind the present classification has contributed significantly to reducing the poverty issue which was from 50% in 1970 to 0.4% in 2016, income inequality and household disadvantages due to low income are something we need to consider for post-MCO.

MCO would impact aggregated income statistics and the distributional measures during the survival phase and Malaysia should be prepared for this or even more.

The government also should prepare something for the post-MCO along with the reform of demarcation to safeguard people’s livelihoods.

But the M40 should not be forgotten as they are also struggling to keep their jobs and maintain a decent lifestyle, particularly for those living in urban areas with increased living costs.

The various initiatives should be structured to improve their living standards such as educational achievement, entrepreneurial skill developments, and access to basic amenities and affordable housing.

Last but not least, there is a greater expectation that the government can use this unprecedented moment to redress imbalances in income and wealth distribution and equalising opportunities to bring welfare in the people’s livelihoods. – May 14, 2020.

* Farhan Kamarulzaman is a research assistant at EMIR Research, an independent think-tank focused on strategic policy recommendations based on rigorous research.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.