2025 Will Be Great For Malaysia Only If These Issues Are Addressed.

PM Anwar will be unveiling Budget 2025 on 18 October.

Anwar: Budget 2025 will address inflation and Boost Wages.

After signing the documents on Monday (7 Oct), PM Anwar expressed optimism for next year’s budget, noting that it will strengthen the local economy and equalize income distribution.

While the details have yet to be announced, Budget 2025 will set the tone for Malaysia and the rakyat for the rest of the year.

In 2024, our country has made significant progress by promoting foreign investment, posting strong GDP and trade numbers, and receiving an upgrade in rating from JP Morgan.

Still, there are three areas which we need to urgently address in order to transition Malaysia into a first world country.

i) Wealth Inequality.

As of July, the Department of Statistics (DOSM) reported that a staggering 34% of the population, accounting for 2.04 million individuals, earn less than RM2,000/month.

FYI, the data only accounts for ~60% of employees in the formal workforce sector. We’re not even talking about those in the informal category yet. I wouldn’t be surprised if the numbers are similar if not worse.

What’s more disturbing is that the distribution of wealth decreases exponentially as income increases, but it abruptly skews towards the rich.

The term “rich” is relative.

For all we know, the T20 bracket may look exactly like the chart above, where the 0.0001-0.1% of people earn exponentially higher than the rest of the group.

Yet, what we’ve been focusing on is more taxes on T20s, without realizing that the majority in this group are not absurdly wealthy.

This brings us to a deeper problem: The B40, M40, and T20 classification system.

In Malaysia, households are arranged based on their total monthly income.

B40s, representing the Bottom 40%, earn less than RM5,249 for the entire household, while M40s earn less than RM11,819.

The remaining 20% (or T20s) are considered “wealthy” because they have a total household income of more than RM11,820.

As of 2022, there are 3.8 persons on average within a household.

This classification system is fundamentally flawed.

  • Will a single mother with RM12k salary taking care of 3 kids and her parents be considered as wealthy?

  • What about someone who earns RM9k per month but is still single with no commitments? Is he considered M40?

So, measures need to be taken to distribute wealth more fairly.

In my opinion, more focus needs to be placed on the ultra-rich (ie. those with a household income exceeding RM50,000 a month). They have been left pretty much unchecked this entire time, and it’s unknowingly stirring a divide between the rakyat.

ii) Extremely Low Wages

From 2013 to 2024, the monthly earnings of Malaysians have stayed stagnant at RM3,300-RM3,600.

Youngsters these days are earning the same as compared to previous generations, but everything else has increased in price.

There was a shocking report by the Board of Engineers Malaysia (BEM) stating that more than 1 in 3 engineers had a starting pay of less than RM2,000 in 2021.

How could someone who went to university to study a high-skilled degree earn almost the same as a McDonalds waiter?

Clearly, there is something wrong with the system.

Low wages are the main cause of alarmingly low EPF savings.

As of Dec 2023, 1 in 2 members below the age of 55 have less than RM12,053 in their retirement accounts.

Bumiputeras have the lowest savings among the three main races, at only RM8,254.

The basic retirement savings set by EPF is RM240,000, which allows members to have RM1,000 per month across the next 20 years after retirement.

But with a median savings of RM12,053, members will only have ~RM50 per month for 20 years.

If no action is taken urgently, we will be hit with a retirement bomb very soon.

"Bumiputera’s EPF savings are low because they save a lot in ASB."

Not quite.

According to ASB’s 2023 annual report, almost 8 in 10 Bumis have less than RM5,000 in ASB.

The wealth gap in ASB is quite similar to the distribution of wages.

While more subsidies to the poor can temporarily alleviate some of these issues, it doesn’t solve the root problem:

Our low wages are mainly due to a mismatch between education and market demand.

For Budget 2025, I’m hoping that the administration will give more incentives to students who pursue studies that will be relevant in this era, such as AI, tech, energy, and finance (since our country’s most valuable listed companies are banks).

To increase members’ retirement savings, the government should:

  • Introduce a matching contribution scheme, where the govt will match your voluntary contributions up to a limit.

  • Give a bonus 1-2% return for the first RM30,000 in everyone’s EPF account to encourage members to meet this threshold. This works much like ASB bonuses.

More importantly, we should not be allowing full withdrawal by 55.

This is controversial but necessary.

According to PM Anwar, 1 in 4 members exhaust their EPF savings within five years after reaching withdrawal age.

“But it’s my own money. I should be the one managing it!”

iii) Petrol Subsidies

Subsidies have long been a dilemma for the government.

Though subsidies benefit the rakyat by easing some of their costs, the money mainly goes to the rich, as they drive bigger cars that consume much more fuel.

More often than not, I see BMWs and Mercedes filling RON95, which is fixed at RM2.05 per litre.

In 2022, the then finance minister Tengku Zafrul reported that the majority of the government’s subsidies go to T20s. “For every RM1 of fuel subsidy, 53 sen goes to the T20 group, while 15 sen is utilised by the B40,” he said.

And let’s not forget about smuggling.

In February, the Domestic Trade and Cost of Living Minister estimated that our country loses RM4.5 million a day to the smuggling of RON95 and diesel.

That adds up to RM1.64 billion in a year.

It’s time to partially roll back the petrol subsidies and hand cash vouchers to those who really need it.

This could be done by implementing the market price for petrol during weekends or certain days, something like what the govt did previously.

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Disclaimer: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice.

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