As part of reforms under the Madani Economic Framework, the government is fine-tuning its subsidies programme, instituting wage reforms, breaking up monopolies and increasing the availability of affordable housing.
For Monash University Malaysia economics professor Niaz Asadullah, the rising cost of living is essentially a mismatch between income and costs.
“Wage growth in Malaysia has been too little, too slow,” he told FMT Business, noting that those in the B40 (bottom 40%) segment are the most vulnerable.
The government, which implemented the minimum wage in 2013, recently upped the ante by proposing a progressive wage policy (PWP) to raise incomes.
Niaz welcomed the PWP – where employers increase pay for workers based on skills, experience and performance – as an initiative to alleviate rising living costs.
“The PWP is to induce employers into increasing wages incrementally. The logic is that without policy intervention, wage growth has been too slow.
“The catch is that any increase is conditional on improvement in worker productivity,” Niaz added.
The PWP will be rolled out this year under a programme that will see the first 1,000 companies that implement it receive various government incentives.
Breaking up monopolies
The government has also resolved to dismantle cartels that manipulate markets to raise prices.
Domestic trade and cost of living minister Armizan Mohd Ali said forming cartels to make profit was an “act of sabotage” against the government’s ongoing efforts to reduce the cost of living.
He cited the case of five companies fined RM415.5 million by the Malaysia Competition Commission (MyCC) for fixing the price of poultry feed last month.
He said the ministry, through MyCC, would beef up monitoring and enforcement to combat cartel practices, especially in the food, agriculture and bid rigging sectors.
The government also spends huge sums on subsidies through various social protection and safety net programmes to reduce the impact of the rising cost of living.
However, blanket subsidies such as those for electricity, fuel and food are also enjoyed by the higher income groups, prompting the government to reform its subsidy programmes that cost a whopping RM81 billion last year, so that more money is diverted to those who really need it.
Subsidy rationalisation
Bait Al Amanah research director Benedict Weeraseena said the government’s gradual approach under the subsidy rationalisation initiative was the right strategy.
“It reduces the likelihood of a sudden spike in prices that can exacerbate the cost of living (crisis),” he told FMT Business.
A critical component of subsidy rationalisation is the central database hub (Padu) launched by Prime Minister Anwar Ibrahim on Jan 2.
Maybank Investment Bank said usage of Padu, which integrates socio-economic data from various ministries, federal agencies, state governments and statutory bodies, can be optimised to improve and streamline welfare, social protection and safety net programmes.
This might end subsidies on essential food items and substitute them with additional cash handouts or financial offsets instead, it said in a report.
In the 2024 budget, the government announced an increase in the allocation of cash assistance through Sumbangan Tunai Rahmah (STR) from RM8 billion to RM10 billion.
Unlike the previous year when STR was limited to recipients facing hardcore poverty, this year’s initiative extends its coverage to both the poor and hardcore poor categories who have also been receiving aid under eKasih.
The government has also decided to extend Sumbangan Asas Rahmah (Sara) benefits to 700,000 STR recipients who will receive RM100 per month for a period of 12 months.
Previously, Sara beneficiaries received the aid for only six months.
Making housing more affordable
Government support for the provision of affordable housing for Malaysians has also helped to reduce the cost of living.
Center for Market Education fellow Consilz Tan said the key components contributing to the rising cost of living were food expenditure followed by housing and transportation.
She said various government programmes such as the housing credit guarantee (HSGS) and rent-to-own (RTO) schemes, i-Miliki and PR1MA had made it affordable to own or rent homes, but that more needs to be done.
The government has doubled the allocation for HCGS under Budget 2024 to RM10 billion whereby it guarantees bank loans to applicants with irregular incomes.
“The RTO scheme is also working well, so we should involve more financial institutions in such schemes,” Tan, a senior lecturer at Xiamen University Malaysia, added.