Sunday, November 30, 2014

Households under microscope - The STAR

Khazanah Research Institute has released ‘The State of Households’ report which sheds light on problem areas including housing, food, education, salaries and BR1M, among others.
FOR Khazanah Research Institute (KRI) managing director Datuk Charon Mokhzani, one of the most surprising things he and his team found while doing research on the state of households in Malaysia is how much data is already there.
“You wouldn’t know if you never looked. There are all kinds of data publicly available,” he says in an interview.
So with its focus on the “pressing issues of the nation”, KRI pored through data and information from various government departments, ministries and bodies such the Department of Statistics, Economic Planning Unit, Education Ministry, EPF, Fama, Bank Negara, World Bank, and Demographia to come up with its 68-page “The State of Households” report.
KRI was set up about a year ago and its objective is to carry out data-driven analysis and research on “pressing issues of the nation” and come up with policy recommendations to the government.
The State of Households report is its first.
“We managed to do it in less than six months. It gives a broad picture of the state of households – an overview of where we are,” says Charon.
Dr Kuppusamy Sigaravello from Universiti Malaya’s Faculty of Economics and Administration, who read sections of the report, thinks it is “well presented in a graphical way” that would help the layman understand it.
“It’s the new way forward to explain things easy,” he says.
A number of facts in the report are quite revealing.
For example, only 10.4% of the country’s working population have a degree, while the “vast majority” are not educated beyond Form Five! So the vast majority work at lowly-paid jobs.
Real median household income in the country grew by 19% between 2009 and 2012 and the median monthly salary for individuals in 2013 was RM1,700 a month.
(Median income is different from average income. With average, you total up the incomes and divide it by number of people. With median income, it is the half-way mark you get, if you list down all incomes from lowest to the highest and take the mid-point figure where half would be earning more and half earning less. Median is seen as a fairer assessment than average.)
The report also shows up huge disparities in income and spending patterns in the country.
About 74% of households in the country earn less than RM6,000 and of this, 23% take home less than RM2,000; and that only 4% of active EPF members make more than RM6,000 a month.
The report also highlights wealth inequality in the country.
At one end, there are 38,000 Malaysian millionaires, wealthy Malaysians are buying million ringgit houses and luxury cars, Malaysians were the fourth largest buyers (4%) of newly built property in London in 2012, and are the top buyers of homes in Singapore.
At the other end of the spectrum, there are people who earn low wages and have no savings, who buy their electrical appliances and furniture on interest-based instalments and end up paying as much as a quarter of the purchase price in interest alone, who are really affected by rising food and utilities prices, and the poorer households are able to afford only RM55 a month or RM1.83 a day on meat.
Charon says KRI will be doing a more in-depth study on food soon to see how to bring prices down.
“If Malaysian food prices are not following world food prices, then we want to know why, and if there is a good explanation for it or if there is a monopoly or middle man involved.
“People always blame the middle man. We don’t have the data yet to tell you if there is a middle man. This is something we are looking to find out.
“There are permits for food importation and incentives for different types of food, and we want to look at all that and see what needs to be changed so that we can bring food prices down to as low as possible.”
He, however, points out that if world food prices go up, Malaysia would not escape the price rise.
“What we want to get away from is that if world prices go up by a little bit, should our food prices go up many times?”
UM’s Dr Kuppusamy thinks it is “simply nonsense” when the government says it can control the price of food.
“Most food are value added along the food supply chain and whether you want it or not, it is also related to the price of fuel and other inputs because food has to be transported and the workers, including those transporting food products, have to be paid,” he says.
He adds that enforcement of price control in the country is poor and done only occasionally and reactively.
“Government enforcement goes ‘off’ about a month after some controls,” he says.
The KRI report also estimates that less than 23.8% or RM5.6bil of the entire fuel subsidy went to households in 2013 while the remaining RM17.9bil went to corporations, businesses and elsewhere.
In calling for a removal of the “blanket subsidies”, the KRI report favours targeted cash transfers like BR1M to help cushion the impact for the lower income group.
“If you want to help people, then decide who you want to help and give them the help. But don’t do it in a wasteful way through blanket subsidies for all. Subsidies encourage wasteful behaviour, smuggling and all kinds of bad behaviour. People are wasteful if things are cheap. If we stop subsidies then people will be less wasteful,” says Charon.
Dr Kuppusamy is all for removing subsidies and assisting those in need with cash transfers like BR1M “if the method to identify the target group is implemented correctly.”
He says the recent move to remove fuel subsidies is the right move, but thinks “the way it has been done is too fast and too soon”.
“Prices of goods have escalated way before the targeted removal of such subsidies. In real terms, the government gains but the rakyat loses faster than the government can react to help those who need help,” he stresses.
He points out that removing the sugar subsidy does not “hit people that much” compared to the fuel subsidy which affects almost everyone on the ground.
“I expected a gradual removal of the fuel subsidy. However, the rich seem to be ‘punished’ for earning more through high tax while the poor is ‘released’ tax-free.”
What this means, he says, is that the rich end up having to pay more for goods especially at the higher end.
The KRI report also touches on the tough housing problem people are facing in the country.
The report states that affordable housing should cost three times the annual median income, but in Malaysia prices are 5.5 times the annual median income.
This makes houses here, in median income terms, more expensive than in the United Kingdom (4.7 times), United States (3.5 times), Ireland (2.8 times) or even Singapore (5.1 times).
The profit margin of property developers in Malaysia too is high at 21%, which is almost double that of the US (12%), the UK (17%) and Thailand (14%).
UM’s Dr Kuppusamy says he actually expected the profit margin of Malaysian property developers to be higher than 21% because housing is purely business and “driven by the private provision of goods”.
Charon says KRI came up with these numbers by going to Bloomberg and having a look at the profit margin of all housing developers in the country and comparing it with the listed property developers in other countries.
And, as affordable housing is now one of the main concerns here, KRI will be doing an in-depth study to see if and how prices can come down.
“There are three elements which are the cost of land, the cost of building the house and financing it, and we are looking at how to lower these.
“Maybe it can be through better technology or maybe there is anti competition in the construction supply chain so the price of cement and other supplies are higher than it should be,” says Charon.
There are many other interesting findings in the report including the ethnic, gender and urban-rural disparity in income, the number of luxury cars sold in 2013, high level consumption of households (98% own a television set, 95% have mobile phones, 91% have washing machines,78% have cars, 57% subscribe to Astro, and 39% have Internet subscription.)
Despite the fact that 74% of the households get less than RM6,000 a month currently, Charon believes Malaysia is still on track to becoming a high income developed nation by 2020.
He says efforts are being made for people to have more disposable income and better purchasing power through higher incomes with better jobs and reducing food, household and transport prices.
“You can’t change the economy tomorrow but you can change it over time,” he says.

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