Two economists and the head of a consumer group told FMT this would ensure that those who face the greatest economic challenges are given the necessary assistance, however much they earn.
As economist and policy specialist Geoffrey Williams pointed out, a household with a family member requiring 24-hour care due to disability or illness would clearly be in need of subsidies for healthcare even if they happen to fall under the T15 category.
“That alone shows that above a minimum income threshold, needs-based subsidies are clearly better than income-based ones,” he said.
There is an ongoing debate on whether categorising households into two groups based on their earning capacity to determine who receives subsidies is the right way to go.
This debate stems from an earlier announcement by the government that the 15% of households that have the highest income will no longer benefit from the subsidy programme.
This is despite the fact that the plan was to begin giving subsidies based on need rather than income level, and eligibility for subsidy would be determined based on data collected for Padu.
Among others, the government uses the data to calculate basic living expenditure and net disposable income to enhance the formulation of socio-economic policies and programmes.
This is to minimise errors such as the inclusion of those who do not need subsidies while excluding those who do.
Economy minister Rafizi Ramli reaffirmed the commitment to needs-based subsidy in June last year when he said the categorisation of income levels into the T20, M40 and B40 groups would be phased out.
“We will gradually implement integrated social assistance programmes based on household net spendable income,” he said then.
The recent move to categorise households with the highest incomes as T15 raised questions about the criteria the choices were based on.
It was later announced that the government may even consider excluding only the T10 or top 10% earners, thereby extending coverage to 90% of households.
Williams said there are many instances where someone in the T10 or T15 group may also need help.
“For instance, a person who lives alone has higher cost of living than a couple who share rental, utility and other costs,” he said.
“So single persons should not be disadvantaged by getting lower benefits,” he added.
Similarly, Williams said, the cost of living is not necessarily lower for young people so assistance for youth should be the same as that for older people.
CEO of the Federation of Malaysian Consumer Associations (Fomca) T Saravanan said a needs-based subsidy programme will better align with the varying realities of households.
He said that while dividing earning capacity into B40, M40 and T20 categories offers a broad picture of income distribution, it often fails to reflect the true financial burden faced by each household.
“Two families earning the same income may have vastly different living conditions,” he said.
For example, Saravanan said, a household supporting elderly parents or children with disabilities, or have high medical expenses, will have must higher costs than a smaller household without such responsibilities.
“Income alone, therefore, is not a reliable indicator of financial needs,” he added.
On the other hand, he said, a needs-based framework ensures that subsidies reach households based on their specific requirements “rather than lumping them into generic income categories”.
“It prioritises those with heavier financial burdens, such as families with dependants, medical conditions or those residing in areas with high cost of living, thus promoting equity,” Saravanan added.
Bank Muamalat Bhd chief economist Afzanizam Rashid said the rationalisation of the subsidy programme will ensure that the savings can be redirected to those who need it most.
“This can be dispensed through cash transfers,” he said.
Afzanizam said such optimisation will also ensure that more money can be redirected to critical areas such as education and healthcare for the lower income group, apart from infrastructure development and security for the country.
“The rationalisation will help to reduce fiscal deficits and, ultimately, government debt. This will be viewed positively by credit ratings agencies,” he said.
“The government may even get an upgrade in its rating if the fiscal consolidation can be maintained,” he added.
Afzanizam said this could lure more foreign investors into the local bond and equities markets, which would translate into higher demand for the ringgit.