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Monday, October 13, 2014

Who should get BR1M and what does it really mean?

As the government raises the amount of cash handouts for low-income Malaysians, there are questions as to how Putrajaya judges who should qualify for the financial assistance and whether the aid actually meets its purpose.
Claims by think tank Institute Rakyat that the government could have overpaid in its BR1M handouts due to how it calculates the income level of those who qualify for the aid suggest that the practice of paying out the aid has contradicted its purpose as a subsidy targeted at those who really need it.
Experts and economists argue that similar to the principle of not giving out blanket handouts to everyone, it is just as important not to assume that all needy Malaysians are the same.
The most well known of these handouts is the People’s Cash Aid Scheme or BR1M. There are also aid programmes for those living below the poverty line income, or PLI, currently set at RM800.
There are two categories of BR1M recipients. Households with a monthly income below RM3,000 will receive RM900, and those with incomes between RM3,000 and 4,000 will get RM750.
No distinction is made between urban or rural households even though the 2010 National census stated that about 71% of Malaysians now live in urban areas.
Jayanath Appudurai, who writes on poverty-related issues, suggested that the threshold at which people qualify for BR1M should be different from state to state to account for different income levels and living costs.
According to the Household Expenditure Survey 2009-2010 (HES 2010),the average monthly expenditure was RM2,465 in urban areas and RM1,599 in rural areas, said Jayanath.
Those 2010 figures may also not reflect actual living costs now after the government cut fuel subsidies and electricity rates for businesses have also gone up.
“In short, the average urban household monthly expenditure is 1.5 times more than the average rural household.
“One could argue a case for a higher threshold for urban areas. Alternatively, a higher quantum of cash aid for urban areas could be considered,” said Jayanath, a former civil servant.
Experts say in giving out cash aid, it is important to take into consideration that not all needy Malaysians are the same. – The Malaysian Insider pic by Afif Abd Halim, October 13, 2014.Experts say in giving out cash aid, it is important to take into consideration that not all needy Malaysians are the same. – The Malaysian Insider pic by Afif Abd Halim, October 13, 2014.He said given that food, clothing, housing and transport constitute almost 65% of average household expenditure, these goods and services could be used as the basis for setting a threshold.
“The threshold could then be calculated by using the consumer price index for urban and rural areas, as well by states.
“Higher threshold should also be used for households in Sabah given the higher cost of living,” said Jayanath.
Economist Dr Lee Hwok-Aun say that the cut-off point for BR1M should be set according to the country’s median income or a fraction of median income to make it responsive to socio-economic conditions.
"Median" income is the country’s total income divided by half. "Mean" or "average" income is the total income divided by the number of households.
Lee of Universiti Malaya said the household income at the median is more reliable as an estimate of the "average", since half of the population earns less and half earns more than this household.
In addition, Lee said, the mean income calculation tends to get inflated by high and super-high income earners at the top.
According to the mean income calculation, the so-called "average" Malaysian household earns RM5,000 a month – a figure that has been called inaccurate when talking about how well off or not well off Malaysians really area.
The median calculation is RM3,600, meaning half of the country’s about 7 million households earn less than that a month.
Using median calculations as a basis, said Lee, is more consistent with a policy that strives to grow the middle class.
“That is, to get the incomes of more and more households closer to median income. As households get concentrated around the median, the share of households that earn below half of the median income will decline.
“In the long term, such an objective is more constructive and dynamic than dispensing BR1M pegged at RM3,000 or other arbitrary amounts,” he said.
Jayanath goes one step further, suggesting that median level incomes be calculated for both urban and rural households.
“For urban households the median income is RM4,238, and for rural households, it is RM2,372, according to the 2012 Household Income Survey.
“Given the average expenditure data above, this suggests the threshold of RM4,500 (urban) and RM3,000 (rural).”
But at the end of the day, what has to be remembered, said Institute Rakyat’s Yin Shao Loong, is that no matter how those thresholds are set, cash handouts are a sign that the government has not done a good job at managing the economy.
“Cash handouts are palliative relief, they do not offer structural change to allow families to ‘graduate’ out of poverty,” said Yin, who is Institut Rakyat’s executive director.
The data itself reflects this. According to the 2012 Household Income survey, the bottom 40% of households make an average RM1,847 a month. The middle 40% make an average of RM4,573 a month.
So even with the government’s own cut-off points, almost 50% (all of the bottom 40% and a third of the middle) of Malaysians qualify for some form of BR1M.
In other words, in the current Malaysian economy, half of the country’s households do not earn enough to make ends meet.
Yin said a combination of cash handouts and perpetually low incomes because wages had been suppressed was a recipe that could be manipulated for political gain.
“Because of this political dimension to the handouts, it is hard to discern if the government is setting its BR1M thresholds based on economic need or political need,” said Yin.
- TMI

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