New Naratif’s The Citizens’ Agenda Malaysia 2022 found that the cost of living in Malaysia is the most pressing issue for the country’s citizens. How should Malaysia manage this issue? What should the people in Malaysia demand from their government?
New Naratif’s The Citizens’ Agenda 2022 survey in Malaysia found that economic issues took up the top three out of the top five most pressing issues they faced, with the cost of living in Malaysia being the citizens’ number one concern. The five top issues were: 1. Cost of Living, 2. Jobs and Wages, 3. Economy, 4. Corruption, and 5. Education. While all five issues are interrelated and important, this article discusses the top three issues identified and how the Malaysian government can manage them through inclusive economic growth and comprehensive inclusive social protection.
If Malaysia were a welfare state, where the government provided for all its citizens’ needs, from the cradle to the grave, managing the cost of living in Malaysia would not be an issue for the individual or the household. However, Malaysia is not a welfare state. Hence,
The remainder of the article discusses Malaysia’s economic growth story for the past three decades and contextualises the COVID-19 years (2020-2021). It continues with a discussion of the current state of social protection. Together, this discussion identifies the issues individuals and households face. Recommendations on how to manage the cost of living in Malaysia then follow it. The article concludes with three suggestions on what readers could do individually and collectively to achieve inclusive economic growth and comprehensive inclusive social protection.
Table of Contents
- An Overview of the Increasing Cost of Living in Malaysia
- Malaysia’s Growth Story
- Social Protection in Malaysia
- How Should the Government Handle the Increasing Cost of Living in Malaysia?
- How Can Malaysian Citizens Demand the Government to Take Such Actions?
- Further Discussion
An Overview of the Increasing Cost of Living in Malaysia
For many Malaysians, the beginning of the new decade (2020) was destructive and demoralising. A pandemic (Jan 2020 to April 2022), political (Feb 2020 to Nov 2022) and economic crisis (2020/21), and flood (December 2021 to January 2022) have significantly reduced the quality of life for millions of Malaysians.
The Malaysian government intervened to address these crises. The unprecedented scale and impact of the health, political, flood, and economic crises have pushed Malaysia’s current social protection system to its limits, necessitating ad-hoc fiscal support to supplement them. It also unearthed serious structural issues surrounding Malaysia’s prevailing economic growth model and social protection framework. Critical issues include—in the economic sphere—the dependency on foreign markets, capital and labour, and weak domestic labour rights; and—in the social protection sphere—fragmented and overlapping programs, gaps in overall coverage, the inadequacy of existing programs to address socioeconomic vulnerabilities comprehensively, and fiscal challenges.
Long-term economic growth and social protection inadequacy remain a challenge. However, the consensus is that Malaysia is a success story, raising the incomes of Malaysians, almost eliminating absolute poverty, and reducing inequality. Since the 1997/98 East Asian Financial Crisis (EAFC) and the 2008 Great Recession, there has been a slowdown and minor reversals in selected vital indicators, which impacted the ability of many Malaysians to manage the cost of living. Add to this issues such as the weakening Ringgit, political crisis, and external shocks such as the pandemic, the war in Ukraine, US–China trade conflicts, erratic weather patterns, and supply chain shocks, all of which have significantly raised the cost of living in Malaysia.
Malaysia’s Growth Story
Malaysia introduced long-term development planning after the 13 May 1969 incident, where unemployment, poverty and inequality among different segments of the community—triggered by politicking—led to deadly riots. During the 1970s, attention was focused on reducing poverty and inter-ethnic disparities. With absolute poverty almost eliminated and overall income inequality declining, policy concerns and thrusts have evolved, with more emphasis now on elevating people’s well-being in terms of their standard of living. The infographic below shows successive governments changing priorities.
Increased Household Income
As a share of GDP, household income constituted 45.7% in 2019, a significant rise from 35.9% in 1989. The average household income more than tripled in real terms from RM2,580 in 1989 to RM7,901 in 2019. Meanwhile, the median income also rose from RM1,801 to RM5,873.
These income gains increased household consumption spending, contributing to a better standard of living for households. Consumption patterns have also changed with more lavish spending on items traditionally described as discretionary such as recreational and cultural activities.
A Decline in Absolute Poverty
Absolute poverty declined from 16.5% in 1989 to 5.6% in 2019, while income inequality moderated as measured by the Gini coefficient. Growth across income groups shows that economic growth has been pro-poor, with households in lower deciles recording higher income growth rates than those in higher deciles.
Moderating Household Income Growth
In the three decades from 1989 to 2019, the growth rate in household income moderated. Mean and median household incomes grew fastest during 1989-1997, but the pace fell by about half during 1999-2007. While growth recovered slightly during 2009-2019, the rates were lower than before the EAFC, reduced by slower growth after 2014.
Paid employment earnings as part of average household income decreased from 66.6% in 2012 to 61.6% in 2019, suggesting slower growth in wages relative to other sources of income.
Rising Household Expenditures
The increase in household income was accompanied by higher expenditure. Between 1993 and 2009, mean and median household expenditure, as shares of household income, declined. This trend was reversed from 2009 to 2014, as expenditure growth exceeded income growth, fuelling concerns about cost-of-living pressures.
The increased household expenditure involved changing consumption patterns. Despite rising prices, consumption increased for communication, recreation, culture, and food away from home. While such spending has long been considered discretionary, some may have become necessary. Meanwhile, consumption of necessities, such as food at home, remained constant while spending on housing and transport increased.
Lower-income Groups Continue to Struggle
Residual household income, the excess of household income over consumption expenditure, varies widely between income groups. Households in the bottom 30% had residual incomes in gross terms below RM800 on average in 2019. It was even lower for the bottom 10%, who only had an excess of RM200 on average. In contrast, the top 10% had RM12,653, more than the second top 10% who had RM5,763. This shows significant gaps in incomes, even among the top earners.
However, it should be noted that the above is calculated on a gross basis. The net residual household income could even be negative on a net basis, particularly for the bottom 10%. This is after deducting payments such as social security contributions, taxes, inter-household transfers and zakat.
The Gap Between the Rich and the Poor is no Better
There was broad convergence towards slower income growth over time. During 1989–1997, households had higher income growth in the bottom income decile, suggesting “pro-poor” growth despite rising headline inequality by measuring the Gini coefficient. However, this did not continue during the next two decades, as all households grew slower.
Beyond summary measures such as the Gini coefficient, more attention should be given to both tails of the income distribution. Nationally, the bottom 20% of households commanded 5.9% of total household income in 2019, while the top 10% had 30.7%. In each state, the bottom 20% had at most 8.4%, while the top 10% had at least 24.3%.
The Persistence of Relative Poverty and Precarious Work
Fewer households are in absolute poverty, but relative poverty persists. Many households only had incomes slightly above the absolute poverty line and were vulnerable to falling back into severe deprivation. This vulnerability extends to middle-income households.
Interstate disparities persist as lower-income states’ growth rates were not fast enough to converge with higher-income states. This trend was underpinned by lacklustre wage growth across states.
Incomes from non-productive sources drove the little convergence between states, as income shares from transfers grew most prominently in lower-income states from 2014 to 2019. Income shares from self-employment also increased in all states in place of reduced income shares from paid employment. Although labour income as a share of total national income increased, the rise was due to more traditional services rather than modern services and higher wages, underscoring the growth of more precarious forms of work and the low adoption of modern technology throughout Malaysia.
Social Protection in Malaysia
Social protection schemes in Malaysia can be categorised as social assistance, social insurance and employer liability, and active labour market programs. The illustration below captures the three social protection schemes and their various initiatives.
- Social assistance schemes include various programmes primarily for the low-income population, administered and funded by various federal government agencies, state governments and non-governmental organisations.
- Social insurance includes statutory schemes administered by several government agencies.
- Active labour market programs encompass various training and entrepreneurial programs.
The KRI (2021) report identified the following gaps in Malaysia’s social protection regime.
- Lack of coverage of core risks: Social insurance and statutory provisions lack coverage of core risks and the population. There are no legislated provisions for children and families. Coverage gaps also exist for other risk areas. Existing schemes cater primarily to those in standard employment.
- Drop in spending and below benchmark: While the number of programs increased at the federal government level, total spending dropped after peaking in 2012. This follows the rationalisation of fuel subsidies which used to make up the bulk of total spending. Though BR1M was introduced in 2014, total spending remained lower than before and below countries with similar or lower incomes. Total spending, excluding fuel subsidies and BR1M/BSH, remained largely the same as in 2008, despite the increasing number of programs.
- Low benefits, fragmentation, and diseconomies: The above point reflects the low adequacy of benefits the programs afford and suggests fragmentation, diseconomies of scale, and overlaps. This is compounded by the various ministries administering the programs, where targeting and verification measures are not standardised.
- Targeting only the “deserving”: The fragmentation of social assistance is driven by targeting only the deserving approach.
How Should the Government Handle the Increasing Cost of Living in Malaysia?
Inclusive Economic Growth
The World Bank publication (2021), “Aiming High – Navigating the next stage of Malaysia’s Development“, provides recommendations addressing social mobility and social protection through inclusive growth. The table and the illustration below capture the recommendations:
|Revitalising long-term growth||Invest more in human capital, including the quantity and, especially, the quality of schooling, with a particular emphasis on math and science. Address the persistent child nutrition gap that weighs on developing human capital at an early age. Increase female labour force participation by reducing barriers to economic opportunities for women through measures to improve the provision of child and elderly care, through greater economic and societal support for parents and by addressing gender norms and attitudes perpetuating disparities. Improve total factor productivity through an enabling environment that would boost innovation, infrastructure, skills, and institutional quality.|
|Boosting competitiveness||Reform key services sectors, including professional services, to promote competitive markets and improve manufacturing competitiveness.Increase the effectiveness of competition policy and ensure competitive neutrality between public and private operators. Modernise the investment ecosystem to make it more efficient and attract higher-quality investments. Automate the incentives regime, simplify the investment promotion network, and adopt a new set of national investment aspirations consistent with Malaysia’s high-income ambitions. Align incentives for researchers to collaborate more closely with the private sector and conduct industry-relevant research, establish mechanisms to strengthen intellectual property rights, strengthen workers’ technological readiness, and improve programs to increase SME capabilities.|
|Creating jobs||Improve basic education outcomes through universal access to high-quality early childhood education and strengthened teaching and learning of cognitive and socio-emotional skills.Upskill and reskill the workforce by making the education system’s academic and TVET streams more responsive to labour market demands, adaptable, and cohesive.Improve immigration and emigration policies by making the foreign worker management system more systematic and transparent, fostering the retention of domestic talent, and attracting foreign talent.|
|Modernising institutions||Strengthen competition within the state-business nexus to raise governance standards, transparency, and accountability among GLCs. Insulate GLC corporate structures from political influence.Strengthen parliamentary oversight and improve government effectiveness by institutionalising Parliamentary Select Committees, reintroducing the Parliamentary Services Act, and increasing the use of Private Member Bills.Enhance the capacity of the public service, including through a Public Service Act that establishes the clear separation of powers between civil servants and the political leadership to help improve the performance of the bureaucracy and to increase resistance to corruption and other malpractices. Introduce a more meritocratic recruitment and promotion system to insulate the public service from political interference.|
|Promoting inclusion||Focus on creating high-skilled, high-paying jobs as a means to facilitate the achievement of inclusive development.Update benchmarks for monetary and non-monetary deprivation to set higher standards and provide practical policy guidance for ensuring the well-being of Malaysians at levels commensurate with a high-income society.Deepen Malaysia’s shallow social safety net based on need-based criteria. Address deprivation and exclusion wherever it is found at the individual or household level.|
|Financing shared prosperity||Increase the progressivity of the personal income tax framework and revisit the reliefs and exemptions to enable increased revenue collection and effective, equitable income redistribution. Broaden indirect taxation by restricting zero-rated and exempted items to a more limited set of goods and services. Expand the capital gains tax and explore other tax forms on non-earned income.Explore options for developing new sources of revenue at the state and local level, including localised sales and income taxes, to increase revenues and decentralise federal-state fiscal relations.Improve spending efficiency through better targeting and consolidation around fewer flagship programs that target households and businesses.|
The Khazanah Research Institute (KRI, 2023) publication, “The Returns to Malaysian Labour – Part 1“, made the following findings:
- The Malaysian labour market exhibits a suppressed and broadly regressive wage growth pattern without institutional or policy interventions such as the minimum wage.
- The minimum wage, the most important policy intervention in the labour market in the period under study, has effectively boosted the wage growth of low-wage workers, effectively reducing overall wage inequality.
- Workers in the middle of the wage distribution have experienced low wage growth relative to low and high-wage earners and are getting left behind. The minimum wage’s effect is restricted to lower portions of the wage distribution.
The KRI working paper made the following recommendation:
The institution of the minimum wage should be strengthened through consistent upward revision and comprehensive implementation. Broader wage growth measures should include upgrading our economy and jobs towards higher value-added activities and institutionalising centralised wage-setting processes to ensure fair returns to labour.Khazanah Research Institute (2023)
Comprehensive Social Protection
On the comprehensive and inclusive social protection aspect, the Khazanah Research Institute has also proposed policy proposals in their 2020 publication, “Building Resilience – Towards Inclusive Social Protection“. They provide five policy recommendations:
|Investing in Universal Basic Income for Children||Establishing a universal child benefit scheme that provides a universal basic income for all children and their families to prevent the risk of any child being left behind during this critical stage of cognitive, physical, and social development. Social protection is vital for children as childhood is an inherently vulnerable stage of life, not least because children cannot provide for themselves and are dependent on others.|
|Expanding Social Security||Expanding the mandatory coverage of existing formal schemes of social insurance against the risks of work injury, invalidity and joblessness and introducing a maternity income security scheme under the purview of the Social Security Organisation (SOCSO).|
|Establishing Social Insurance Pension for Old Age||For elders, establish a Social Insurance Pension (scheme as a basic income security during old age. Social protection for old age income security from contributory schemes remains limited in coverage and adequacy.|
|Financing and Progressive Realisation Strategy||Implement progressive realisation strategies, recognising the essential arrangement to build institutional capacity, including the amendment of relevant legislation, and providing more time for the government to shore up finances.|
|Building a National Social Security Institution and a Unified Registry||In addition to sustainable funding, Malaysia’s social protection system also requires an administrative system that is efficient and transparent to ensure good quality service delivery and responsiveness to shocks. Expanding the role of the existing institution as the National Social Security Institution to implement and administer both extended and new social security schemes can be the way forward.|
How Can Malaysian Citizens Demand the Government to Take Such Actions?
We must recognise that piecemeal, reactionary, or ad-hoc approaches to managing the cost of living in Malaysia are detrimental to the overall well-being of individuals and households. Instead,
Malaysians can achieve this if they do the following:
- Engage your state and federal representatives to encourage them to champion inclusive growth and comprehensive inclusive social protection.
- Support civil society organisations financially or through other means (e.g. volunteering), especially those that champion inclusive growth and comprehensive inclusive social protection.
- Support the trade union movement in Malaysia to achieve high unionisation rates. This enables strong trade unions to take collective action on behalf of all workers.
At the end of the day, it is only citizen action and active social participation that would help Malaysians protect their well-being through tough economic times. We must demand the government to retire economic models that promote growth without inclusivity, or those that do not improve the gap between the rich and the poor. We must be critical of approaches to social protection that discriminate between those “deserving” and those who are deemed lesser. The problem of the cost of living in Malaysia can only be improved once Malaysians build solidarity and demand inclusive economic growth and comprehensive social protection.
Writer Greg Lopez discusses this issue in more depth with Editorial Manager Bonnibel Rambatan in this episode of Southeast Asia Dispatches. Transcript available here.
- From 18 July to 5 August 2022, 1,236 Malaysians responded to New Naratif’s Citizens Agenda survey. The survey identified 22 top issues. This was followed by Stage 2, where the following top five issues were identified. This article addresses the following points identified in the survey:
- What is currently happening in the Malaysian economy?
- Why is the cost of living increasing while there seem to be fewer jobs with decent wages around?
- What is the best way to help the Malaysian people and develop the Malaysian economy?
- Is it better to have a high wage but high inflation or a low wage with a subsidised cost of living?
- Should we increase our minimum wage, keep our wages low, or focus on higher-income sectors?
- Should we continue subsidising fuel?
- Should the cost of goods be subsidised?
- Should the government start building houses for people to rent?
- Are there better ways to help?
- Whom do we need to talk to and address?
- What political action or pressure can we undertake to improve the situation?
- The diagnosis, analysis and recommendation are based on the extensive research work done by the World Bank (WB) and Khazanah Research Institute (KRI), in particular the World Bank (2021) Aiming High – Navigating the Next Stage of Malaysia’s Development, KRI (2021) Building Resilience – Towards Inclusive Social Protection in Malaysia, and KRI (2020) “Welfare in Malaysia Across Three Decades: The State of Households 2020 Part 1.
- The World Health Organisation (WHO) declared COVID-19 a global health emergency on 31 January 2020, and a global pandemic on 12 March 2020. Malaysia recognised COVID -19 as a pandemic on 18 March 2020 and transitioned to endemic phase on 1 April 2022, when population vaccination rates reached 70%. The COVID-19 pandemic has so far claimed 37,000 lives, and more than five million confirmed cases. The Malaysian economy experienced its first recession in over a decade, and the second deepest recession (-5.5%) since independence in 2020. Unemployment peaked at 5.3% in May 2020, the highest since the recession of 1985. In the second quarter of 2020, there were 791,800 unemployed. Suicide cases increased by 81% in 2021, over 2020. https://www.nst.com.my/news/nation/2022/09/830215/81-cent-increase-suicide-cases-last-year
- Between February 2020 to June 2021, Malaysia unveiled nine different stimulus packages amounting to a total of RM530 billion, twice as large as the initial 2020 budget. The packages targeted three primary areas: assisting people, rejuvenating businesses, and stimulating the economy (Yin & Wan Usamah, 2022).
- Adapted from BNM, Economic and Monetary Review, 2020.
- This section borrows from various KRI publications, and in particular “A Rising Tide Lifts All Boats? Intergenerational Social Mobility in Malaysia,” authored by Hawati Abdul Hamid with Jarud Romadan Khalidi and Jomo Kwame Sundaram (2019), “Welfare in Malaysia Across Three Decades: The State of Households 2020 Part 1” by Christopher Choong Weng Wai, Adam Manaf Mohamed Firouz and Hawati Abdul Hamid (2020), and the World Bank (2021) publication, “Aiming Hgh – Navigating the Next Stage of Malaysia’s Development.”
- Malaysiakini provides a detailed explanation of this complex incident.
- It is pertinent to note that Malaysia’s Vision 2020, launched in 1991, had stated that inclusive growth and social protection would be features of a developed Malaysia. The Eighth Challenge is “ensuring an economically just society, in which there is a fair and equitable distribution of the wealth of the nation, and full partnership in economic progress”and the Ninth Challenge is “establishing a prosperous society, with an economy that is fully competitive, dynamic, robust, and resilient.”
- The KRI publication, “Welfare in Malaysia Across Three Decades – The State of Households 2020 Part 1”, (2020) summarises the Malaysian long term growth story.
- This section borrows from the KRI (2021) publication, “Building Resilience – Towards Inclusive Social Protection in Malaysia” by Hawati Abdul Hamid, Adam Manaf Mohamed Firouz, Jarud Romadan Khalidi, Nur Thuraya Sazali, Puteri Marjan Megat Muzafar, and Siti Aiysyah Tumin.
- This visual is from the KRI (2021) booklet of the Building Resilience – Towards Inclusive Social Protection in Malaysia, report.
BNM. (2020). Economic & Monetary Review 2020. Bank Negara Malaysia. https://www.bnm.gov.my/documents/20124/3026377/emr2020_en_book.pdf
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Yeap, C. (2021, January 12). Vision 2020: Mission unrealised. The Edge Malaysia. https://theedgemalaysia.com/article/vision-2020-mission-unrealised
World Bank (2021) ‘Aiming High – Navigating the Next Stage of Malaysia’s Development,’ Country Economic Memorandum, Washington, DC: The World Bank.