Impact of subsidy transition needs to align with progressive wages

THERE are many opinions on the subsidy transition, especially in the implementation of targeted subsidy programmes and how to ensure that these subsidies truly help those in need without overly burdening other Malaysians.

Among the related issues that arose was that the subsidies were enjoyed by not only Malaysians but also foreigners who purchase subsidised goods.

The recently-introduced Centralised Database Hub (Padu) was seen as strengthening the possibility of transitioning bulk subsidies to more targeted subsidies, including petrol, diesel, and food, which was expected to start this year.

The potential transition of bulk subsidies to a more targeted approach for the RON 95 has the potential to impact inflation.

This included how it affected vehicle purchases and higher travel expenses for some Malaysians using personal vehicles due to the expected launch of subsidy rationalisation targeting RON95 in the second half of 2024.

Similarly, the impact of targeted subsidies on electricity could also affect the prices of goods, especially products that heavily rely on high electricity usage.

There was a need for a deeper analysis of the effects of implementing targeted subsidies.

At the same time, we want to ensure that the prices of goods were controlled in terms of their increases.

Targeted subsidies also have an impact on purchasing power, potentially making people more cautious in their spending.

Based on the household income classification in 2020 by the Department of Statistics Malaysia, households with monthly incomes below RM4,850 are categorised as B40, M40 households have incomes between RM4,851 and RM10,970, while households with incomes exceeding RM10,971 are categorised as T20.

T20 is further divided into T1 - RM10,971 to RM15,040 and T2 - RM15,041 and above.

However, based on the previous announcement, the classification of B40, M40, and T20 is gradually being phased out starting this year.

This writer believed that the classification of households was not align with the current situation, taking into account the prices of goods and the cost of living.

The salary increases received by some workers were not even proportional to the rise in the prices of goods and the cost of living.

This writer suggested that before implementing targeted subsidies, it was crucial to reevaluate the household income classification by relying on a new classification based on the disposable income of households compared to the classification based on household income currently in use.

For example, based on the current household income, not all T20 households can be considered as living a luxurious or wealthy life.

This writer previously explained how the estimated expenses for a household with an income of RM12,000, categorised as a T20 household.

However, after deducting all expenditures such as loan payments, utility bills, daily necessities, educational expenses for those still in school or higher education institutions, insurance and others, how much money will remain in hand? What is the balance a few days before receiving the next salary?

Some T20 households are not luxurious, especially those working in urban areas with many dependents, leading to high spending commitments.

The transition to a new classification based on the household's disposable income was something that should be implemented.

This writer believed that the subsidy transition should also take into account households with small dependents who were still studying in school or higher education institutions.

In addition to the introduction of the new classification based on disposable household income, the implementation of progressive wages also needed to be expedited to help boost the income of Malaysians.

The Robert Walters Annual Salary Survey for 2024 found that 63 per cent or more than three out of five employees, expected a salary increase this year, with a significant majority (71 per cent) anticipating a 10 per cent salary increase.

This indicated that Malaysian workers anticipate a better salary increase this year, both in the private and public sectors, to cope with the cost of living.

This became even more crucial with the implementation of targeted subsidy programmes.

It is essential to strike a balance between targeted subsidies and fair wages for Malaysian workers, taking into account the challenging economic conditions and the current situation.

* Professor Madya Ts Dr Anuar Shah Bali Mahomed is the Universiti Putra Malaysia School of Business and Economics Deputy Dean.

The views expressed in this article are the author's own and do not necessarily reflect those of Sinar.