KUALA LUMPUR – Rising costs of living are expected to hit Malaysia’s middle- and high-income households the hardest in 2024, as the government shifts to targeted subsidies for fuel and electricity, and imposes tax hikes as part of its economic reforms.
Household budgets for these two groups will be significantly squeezed in the second half of 2024, say economists, as they will not qualify for state assistance and will also have to grapple with higher prices of imported goods due to shipping disruptions in the Red Sea.
“Although both the middle- and high-income households will feel the pressure, the most vulnerable would be the middle-income earners as they tend to have lower savings compared with the high-income households,” said Mr Mohd Afzanizam, chief economist and social finance head at Bank Muamalat Malaysia.
Malaysia categorises household income levels as B40, for the bottom 40 per cent of income earners; M40, the middle 40 per cent; and T20, the top 20 per cent of earners.
M40 households have a gross monthly income of between RM5,250 (S$1,490) and RM11,819. Families with higher earnings, the T20, are considered high-income, while B40 households earn a gross monthly income of below RM5,250.
Utility bills are among the big-ticket items set to rise.
From Feb 1, monthly household water bills will rise between RM1.60 and RM8 in 11 states in Peninsula Malaysia and three federal territories, to fund new water-treatment plants and fix leaking pipes.
For the first six months of 2024, monthly electricity bills will rise by an average of RM22 for domestic users paying between RM230 and RM738. This is part of the government’s plan to lower expenditure on electricity subsidies, by adjusting tariffs every six months to reflect changes in fuel prices or other generation-related costs. In 2023, targeted electricity subsidies helped save the government RM4.6 billion.
From March, Malaysia also plans to increase the service tax on water and power to 8 per cent from 6 per cent.
The largest chunk of the government’s subsidy bill, whose total is estimated to exceed RM81 billion for 2023, is for petrol, diesel and liquefied petroleum gas. The government is expected to withdraw petrol subsidies for the T20 group by the second half of 2024, a move which would add between RM15 billion and RM17 billion to its coffers.
All this comes on top of the lifting of price controls on chicken in October 2023, which was aimed at reducing subsidies and regulating supply, but has also resulted in prices rising by as much as 17 per cent in November.
Savings from subsidy cuts will be channelled to the low-income group in the form of cash aid, Prime Minister Anwar Ibrahim has said.
An M40 income-earner, who wanted to be known only as Ms Anuradha, said it has become harder to live comfortably on a single income as prices of basic necessities have increased.
“I am surprised that now, when I buy daily goods such as milk, eggs, bread and vegetables, the bill is already between RM50 and RM100, which is double (what it was) six months ago. About 30 per cent of my total expenditure goes into buying groceries,” the 40-year-old e-commerce entrepreneur told The Straits Times.
Housewife Satya Abeywickrama, 35, was also shocked to see her latest grocery bill, which was 50 per cent more compared with her bill two months ago for the same items. The price hike that stood out the most for her was for sausages, yogurt, and imported strawberries and grapes.
“Higher petrol prices will further increase my Grab fare, which is already very high. Right now, I spend up to RM1,000 on Grab fares monthly,” said Ms Satya, who belongs to a T20 income household.
T20 households saw their gross income grow 5.6 per cent between 2019 and 2022, compared with the B40 group at 8.6 per cent, and M40 at 8.4 per cent.
In the first 11 months of 2023, Malaysia’s inflation rate was 2.6 per cent, and 3.3 per cent in the same period in 2022.
Geopolitical tensions and macro-economic conditions will further squeeze incomes in 2024, say economists.
Mr Mohd Afzanizam told ST: “Costs of imported goods will also start to rise due to higher shipping costs as container vessels are forced to circumnavigate a much longer route via South Africa’s Cape of Good Hope, compared with the Red Sea, due to the ongoing shipping attacks by Houthis.”
The Red Sea is linked to the Mediterranean by the Suez Canal, which is the shortest shipping route between Asia and Europe. The diversion of container vessels to a longer route around the southern tip of Africa could result in freight rates tripling in 2024 from a year ago, according to the Federation of Malaysian Manufacturers.
Malaysia’s seaborne exports and imports amounted to about 53.5 per cent and 60 per cent of total exports and imports, respectively, in the first 11 months of 2023, according to the Department of Statistics.
“Given that our seaborne trade is more than 50 per cent of total trade, any interruptions in the global supply chain will increase the costs of doing business in Malaysia,” said Mr Mohd Afzanizam.
The M40 and T20 groups will be more affected by higher shipping costs as they consume more imported goods, said Mr Patrick Tay Soo Eng, PwC Malaysia’s deals partner of economics and policy.
Malaysia’s economic growth for 2023 is expected to register at 3.8 per cent, dragged by a slowdown in construction and stagnant manufacturing activity, according to advance estimates released by the Department of Statistics on Jan 19. This is below the central bank’s estimate of 4 per cent.
Mr Tay expects the economy to continue its lacklustre pace in 2024, on the back of a slowing global economy from weakening global trade, elevated public debt and high borrowing costs amid mounting geopolitical tensions.
Sluggish economic growth in Malaysia will dampen business earnings and lead to slower growth in household incomes, he said. He noted, however, that the government’s economic reforms are necessary.
“Biting the bullet by taking the hard decisions will create the room and resources to build a stronger, more resilient economy, ultimately resulting in higher incomes and better public services for all,” he added.
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2024-01-21 21:00:00Z
CBMifmh0dHBzOi8vd3d3LnN0cmFpdHN0aW1lcy5jb20vYXNpYS9zZS1hc2lhL21hbGF5c2lhLXMtZWNvbm9taWMtcmVmb3Jtcy1zZXQtdG8tZWF0LWludG8tYnVkZ2V0cy1vZi1taWRkbGUtaGlnaC1pbmNvbWUtaG91c2Vob2xkc9IBAA
