‘Disposable income’ to target subsidies more a long-term solution, says economist

 

PKR deputy president Rafizi Ramli has suggested using disposable income to determine how targeted subsidies will be applied.

PETALING JAYA: The idea of using disposable income as a measure to target subsidies has been welcomed but an economist believes the idea is more of a long-term solution.

Goh Lim Thye of Universiti Malaya said disposable income was a more sensible gauge for subsidies as they would be able to reach targeted groups more effectively.

However, a disadvantage would be the time needed to come up with recipients’ actual disposable income, which might delay the process of helping those in need.

“So I would say this can be a long-term plan and something to work towards in the future, as long as distributions based on the current system are not held back,” said Goh, who is a senior economics lecturer.

“I truly believe that even if this method is used, there will be those who will come up with ways to abuse the system. There is no one system that will be a perfect fit.”

Disposable income is defined by the statistics department as the amount of income left after deducting compulsory payments such as taxes, zakat and contributions to the Employees Provident Fund.

Another analyst, Benedict Weerasena of think tank Bait Al-Amanah, said disposable income must be based on the latest data available.

Other factors should be included, such as household sizes, composition and also geographical locations.

However, these additional factors might complicate the implementation process, resulting in greater exclusion error as households fall through the cracks.

Weerasena said the current household income classifications painted an inaccurate depiction of those in need of targeted subsidies.

He said 580,000 households previously in the M40 category had slipped into the B40 classification in 2020, with 12.8% of T20 households slipping into the M40 group the same year.

That was before taking into account the impact of the Covid-19 pandemic and repeated lockdowns in 2021.

The suggestion of using disposable income was mooted by PKR deputy president Rafizi Ramli earlier this month. He said income limits did not reveal the real difficulties faced by families. - FMT