THE recent claims made by Isham Jalil in the Sun Daily dated Jan 21 that state government-implemented rise in property taxes has substantially raised living costs for the people are both dubious and sidesteps the importance of growth stimulation measures to economic development.

In truth, property-related taxes are not the main cause for high cost of living.

In theory, cost of living measures how much consumers spend in obtaining food, housing, transport, clothing and other items, which varies across locations and over time. It also signifies the cost of maintaining a certain type of living in a given geographical location.

Regional disparities in socio-economic development largely influence the patterns of household expenditure in Malaysia. These can be seen by comparing variations in the prices of goods and services sold and household earnings across specific regions.

For example, household expenditure is often lower in a region which has agriculture and fishery activities as its primary economic focus, compared to a region reliant on the manufacturing and services sectors.

Looking at the 2016 Household Expenditure Survey published by the Department of Statistics, households residing in a region with high-intensity development spent more compared to households from low-intensity development regions. Putrajaya is typical of the former.  Households in that state had the largest expenditure across all states in Malaysia, with an average of RM7,000 per month, followed by Kuala Lumpur (RM6,214).

Meanwhile, with the exception of Labuan, households in East Malaysia (Sabah: RM2,595; Sarawak: RM3,118), Kelantan (RM2,875) and Perlis (RM3,085), which are largely agricultural and fishing areas, spent the least.

Even so, it is vital to note that over time, household expenditure actually grew at proportionately high rates in some of the country’s least developed states. Terengganu and Perlis respectively registered jumps in household expenditure of 11% and 9.5% per annum from 2014-2016, just trailing behind Putrajaya (11.3%).

What should concern governments at all levels is that for the same period, the increase in average household income in most states did not keep up with the rise in household expenditure. Only households in Selangor, Kelantan, Perak, Pahang, Kedah and Johor had experienced income rises that exceeded the rise in expenditure (Figure 1).

Figure 1: Compounded annual growth rate of mean household expenditure and income by states, 2016. Compiled from the Department of Statistics

In terms of component expenditure, Malaysian households spent about a quarter of their entire expenditure on housing, water, electricity, gas and other fuels. These are common key elements in household consumption, and unsurprisingly, in states with high-intensity development such as Kuala Lumpur, Putrajaya, Penang, Selangor and Johor, the share of such elements is generally higher .

On the other hand, states with a lower development intensity (for example, those on the East Coast) spend over one-fifth of total household expenditure on food and non-alcoholic beverages.

In addition, households from different income groups value consumption items differently, according to their individual needs. While households from T20 spend half their household income on health, transport, communication and education expenses, B40 households use an equal proportion of their income on food and housing. 

In Penang, as a share of household consumption on housing, imputed rent constituted 73% of monthly household expenditure, with a large proportion going towards housing loans. Furthermore, the Household Expenditure Survey shows that merely 1% was taken up by other services related to dwelling, which includes quit rent and assessment taxes collected by state government and local councils respectively.

The state and local authorities collect these taxes to finance public infrastructure construction and maintenance works in the surrounding vicinity of dwelling locations. Examples of such costs include cleaning and maintaining drains, the repair of potholes, garbage collection and so on. 

Therefore, the rise in property taxes does not have a significant effect on the overall cost of living.

In Penang, land scarcity and high demand for houses result in higher purchase prices for housing property. This creates a need for higher housing loans, which in turn pushes up the cost of living for the individual household. Penang’s imputed rent is therefore also higher than the national average.

Measuring income inequality through the lens of living costs has its limitations, especially when the regions being compared vary greatly in the level development, in professions and in the extent of urbanity. Looking forward, it is equally important to consider the potential rise in the general living standards of society.

A strategic infrastructure development can elevate the standard of living of people from all walks of society. In particular, providing public transport, urban public spaces and waste management stimulates social mobility and supports the lifestyle needs of a developing population.

Take Singapore and Hong Kong as examples. These countries have integrated and well-connected public transport systems that deliver effective and reliable service, thus increasing human mobility and reducing travelling time. These are also places that have the most expensive houses in the region.

According to the Sustainable Cities Mobility Index 2017, Hong Kong has the best public transport system in the world due to its innovative and efficient metro network. Singapore ranked eighth. Kuala Lumpur sadly ranked lowest along with Hanoi and Cairo.

If the government is truly serious about wanting to improve quality of life for its people, it should concentrate on investing in infrastructure projects that will help raise the general standards of living, such as building a reliable and efficient public transport system that reduces the cost of travelling in terms of time and money. – February 11, 2018.

* Ong Wooi Leng is the Fellow and Head of Social Studies and Statistics Programme at Penang Institute. Her research interests lie in socio-economic development and labour market analysis in Penang, with a focus on how policies at educational institutions should appropriately address the mismatch of skills needed by the market.

* 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.