Malaysia's economic reforms to hit middle, high-income earners

Subsidy cuts, tax hikes to affect these two groups as they do not qualify for welfare

- Zunaira Saieed

Rising costs of living are expected to hit Malaysia's middle and high-income households the hardest in 2024, as the government shifts to targeted subsidies for fuel and electricity, and imposes tax hikes as part of its economic reforms.

Household budgets for these two groups will be significantly squeezed in the second half of 2024, say economists, as they will not qualify for state assistance and will also have to grapple with higher prices of imported goods due to shipping disruptions in the Red Sea.

"Although both the middle- and high-income households will feel the pressure, the most vulnerable would be the middle-income earners as they tend to have lower savings compared with the high-income households," said Mr Mohd Afzanizam, chief economist and social finance head at Bank Muamalat Malaysia.

Malaysia categorises household income levels as B40, for the bottom 40 per cent of income earners; M40, the middle 40 per cent; and T20, the top 20 per cent of earners.

M40 households have a gross monthly income of between RM5,250 (S$1,490) and RM11,819. Families with higher earnings, the T20, are considered high-income, while B40 households earn a gross monthly income of below RM5,250.

Utility bills are among the big-ticket items set to rise.

From Feb 1, monthly household water bills will rise between RM1.60 and RM8 in 11 states in Peninsula Malaysia and three federal territories, to fund new water-treatment plants and fix leaking pipes.

For the first six months of 2024, monthly electricity bills will rise by an average of RM22 for domestic users paying between RM230 and RM738. This is part of the government's plan to lower expenditure on electricity subsidies, by adjusting tariffs every six months to reflect changes in fuel prices or other generation-related costs. In 2023, targeted electricity subsidies helped save the government RM4.6 billion.