In its bid to uplift low-income citizens ever since it came into power, the Anwar administration has set its sights on the top 20 per cent households, also known as the T20. Several perks may no longer be available to the T20 from 2024. The bulk of it would be restructuring blanket subsidies, which critics claimed have disproportionately benefited higher-income individuals who consume more.
The classification of T20, the middle 40 per cent (M40) and the bottom 40 per cent (B40) is in itself problematic as it does not account for costs of living — therefore does not quite accurately portray the supposed wealth of those in the upper bracket.
For example, if a household is earning RM8,000 in total, it would be considered T20 in Kelantan — but in Kuala Lumpur, it would not even be considered M40. Instead, it would be considered B40 in Kuala Lumpur. But nationwide, it would be considered M40 — more accurately in the M3 sub-category.
Below is the a list of subsidies that the T20 will not be able to utilise soon:
Fuel
During 2022, the government spent RM50.8 billion on fuel subsidies. Of that amount, approximately 35 per cent, or RM17 billion, was used by the T20.
A targeted subsidy, meant to benefit the poor more than the wealthy, has been talked about since 2018, when Pakatan Harapan got control of the government after the 14th general election. However, the initiative was delayed several times as stakeholders did not come to an agreement on the best method of implementation.
On May 19, Deputy Finance Minister announced that the T20 will no longer be given subsidies starting next year. The mechanism for implementation is yet to be revealed, but it was announced that a newly created organisation called the Central Database Hub or Padu, will be in charge of figuring out how the targeted subsidies will work. It could be in the form of identifying one’s MyKad, a new system of cards altogether, or based on the engine capacity of their automobiles — which would mean that a high-earner using a 1,000cc car would still be liable for subsidised fuel.
Electricity
Electricity subsidies for T20 households will also end in 2024. This comes after the government in January decided to stop electricity subsidies for medium voltage and high voltage users — which are mostly non-residential premises such as factories or large office buildings — until June 30. At the time, farmers and animal breeders however were told that they would continue to benefit from a subsidy of two sen per kWH, which is the same amount enjoyed by domestic users.
In March, Natural Resources, Environment and Climate Change Minister told Parliament that the government had set aside RM10.76 billion for the expected cost of its electricity subsidies for the first half of 2023.
Haj aid
In March, Tabung Haji chief executive officer Datuk Seri Amrin Awaluddin said that the cost of performing the Islamic pilgrimage of Haj had increased to RM30,850 in 2023, up from RM28,632 last year. The government would be bearing an additional RM1,000 in Haj subsidies for the B40, and would halt subsidies for the T20. Haj subsidies for the T20 once again will be stopped.
In April 2022, then minister in the prime minister’s department Datuk Idris Ahmad said that the government spends between RM300 million and RM400 million per year on Haj subsidies.
Tax
The government is to raise the income tax rate of those earning between RM100,000 and RM1 million between 0.5 to 2 percentage points — the higher the income bracket, the larger the increase. Additionally, the government is working on imposing a tax on luxury goods, such as luxury watches and luxury clothing.
In Budget 2023, the government projected earnings of RM995 million from income tax and an additional RM7 million from other direct taxes for the current year. Indirect taxes — such as sales tax and excise duties — was estimated to provide approximately RM248.9 million.
The huge disparity in who counts as T20 across the country has since fuelled debate on how Putrajaya will classify who belongs in the T20 group that would no longer receive subsidies in 2024.
If you drop subsidies for the T20, you must be prepared to run the risk of more loopholes being exploited. How do you prevent someone in M40 or B40 assisting the T20 in some areas like fuel? Or, will you be able to prevent a M40 buying luxury goods on behalf of the T20? Malaysians are creative people; they will always find ways to go around obstacles.
Isn’t it better to do direct transfers to the B40 from any tax increase to the T20? In addition, this (transfer) will enhance consumption and may lead to a higher GDP growth. Otherwise, the T20 is going to suffer a double “whammy” – no subsidies and an increase in tax rate. The other idea of using “household net disposable income” is laudable but very difficult to implement – data is weak for “disposable income” as I see it.
References:
Putrajaya tightens purse strings, here’s what T20 households won’t get to enjoy starting next year, Keertan Ayamany, The Malay Mail, 7 June 2023
No more B40, M40, T20? Economists welcome govt’s move to “household net disposable income” for targeted subsidies, Keertan Ayamany, The Malay Mail, 8 June 2023
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