Prioritise cost of living in economic planning

For the new government, the issue of cost of living faced by the rakyat should be a critical priority. Consumers are suffering. Incomes are low. 

The living wage as proposed by Bank Negara is RM2,600 for a single adult, RM4,500 for a couple with no children and RM6,500 for a couple with two children. Yet, six million workers or 50 percent of workers in Malaysia earn less than RM2,160.

Many Malaysians, especially in urban areas, feel their income is insufficient to raise their living standards. As of 2018, nearly 30 percent of Malaysians felt that they did not have enough money for food and 23 percent reported they did not have adequate money for shelter. According to Bank Negara, the cost of living has been increasing across all households but more significantly for lower-income households in urbanised states. Generally, the higher cost of living was driven by higher prices for food and housing.

The lower-income household spend more on food and housing which costs more in urbanised areas. The bottom 20 percent spend 65 percent of their household expenditure on food and housing while the bottom 40 percent spend 58 percent of their household expenditure on food and housing.

Expenditure on transportation is also significant. So, for the bottom 20 percent, food, housing and transportation, accounts for 75 percent of household expenditure while for the bottom 40 percent, these three components account for 70 percent of household expenditure. Thus, to address the concerns of stagnant incomes and increasing costs of living, the government needs to address the issues of food prices, house prices and the cost of transportation.

What are the major concerns of Malaysian consumers? According to Emir Research, on a study on the Pulse form the Ground, 86 percent of the respondents in the study indicated that the cost of basic needs and the affordability of homes were the most significant cause of their worry. The cost of living concerns was followed by concerns of a lack of job opportunities (77 percent), unemployment (76 percent) and being in debt to sustain cost of living (76 percent). These are the rakyat’s concerns.

There are five components of the cost of living for consumers – food prices, unaffordable housing, poor public transport, expensive healthcare and the cost of raising a child.

The price of food items in the marketplace is exorbitant. Food is certainly the most important expenditure of households. Malaysians in the Bottom 40 group spent a total of 48 percent of household expenditure on food. Certainly the poor will be more affected by high food prices as a greater percentage of their income is spent on basic food items.

Why is food so expensive in Malaysia? Firstly, food production in Malaysia is low. Out of the eight million hectares of agricultural land, six million hectares are planted with palm oil and one million with rubber. Less than one million hectares or just 12 percent of agricultural land is for food production.

This has resulted in Malaysian consumers depending on imported food. Malaysia imported RM51.3 billion in 2017 of agricultural and food products for local consumption, an increase from RM38.9 billion in 2013; and increase of 32 percent in four years. For example, Malaysia is only 22 percent self-sufficient on beef and 39 percent self-sufficient on ikan kembung. When food is imported, prices would largely be influenced by global factors, including monopolistic practises as well as climate change in food-producing countries. This could easily affect the price of food in Malaysia.

The recent report on the market review of key food items by the Malaysia Competition Commission (MyCC) confirms that one of the key reasons for high food prices is distortions and manipulations in the food supply chain.

For example, the price of ikan kembung has increased by six times between the price received by the fisherman and the price paid by the consumer. Another example of substantial price increase is the price of cabbage; price at the farm is RM1.60 while consumers pay a retail price of RM3.90, an increase of 143 percent.

The MyCC in their report have identified multiple causes of the exorbitant food prices in the market. The reasons include market manipulation by middlemen, multiple intermediaries and manipulation of approved permits causing unreasonable increase in food prices. For example, in the fish supply chain, middlemen are known to hoard fish when prices are low, thus restricting supply and forcing the prices of fish to increase.

There is also opaqueness in price determination along the supply chain. MyCC proposed that it was essential to promote competition through greater transparency and market competition through the removal of market inefficiencies.

These market distortions need to be addressed. The government has two powerful legislation to act against price manipulators, that is the Price Control and Anti-Profiteering Act, 2011, and the Competition Act, 2010.

These legislations are powerful instruments to detect price manipulation practices and profiteering as well as to take strong actions against the manipulators and profiteers. Through the market study, these offenders have been identified. The role of MyCC and the Ministry of Domestic Trade and Consumer Affairs should not be just to identify the problems; they must use the provisions in the Acts to eliminate the illegal and unethical practices that are having such a devastating effect on all Malaysian consumers, especially the poor.

In a bigger picture to reduce food prices, the government needs to give greater priority to food production to increase food security, so that we can decrease food imports and be more self-sufficient in essential agricultural products.

Next, houses in Malaysia are simply unaffordable. According to Khazanah Research Institute and Bank Negara, the signal of a well-functioning affordable home market is when the median price for the whole housing market is three times the gross annual household income. Overall in Malaysia, houses prices are 4.4 times the median income. Further, zeroing in on the states, house prices in Kuala Lumpur is 5.4 times, in Penang it is 5.2 times, in Johor it is 4.2 times and in Selangor is 4.0 times. According to Bank Negara. an affordable home is priced at RM242,000, but in actual fact the average price of houses in Kuala Lumpur is RM490,000.

In Selangor it is RM300,000, in Johor it is RM 260,000 while in Penang it is at RM295,000.

To put it simply, houses in Malaysia are simply not affordable to consumers. The efforts, through policy and programmes, should be to reduce the price of houses to the affordable range.

Thus, the first priority in assisting homeownership should be to build affordable homes as well as regulate the private sector to build affordable homes. The private sector is more keen to build expensive homes with high rates of return, and when these expensive houses cannot be sold, they put pressure on the banks to approve loans to consumers, especially young workers, who may not be able to afford the monthly payments.

While young workers have a right for homeownership, purchasing a home beyond their means can only result in severe financial hardship in the near or long term. Fomca strongly opposes the policy by the previous government to allow the sale of houses priced at RM600,000 to be sold to foreigners. This policy will certainly motivate housing developers to cater substantially for the foreign market and further deprive the right of Malaysians to affordable housing.

The rental market also needs to be expanded and promoted so that consumers who are unable to afford homes, can rent one until they have the financial capacity to purchase their own homes.

Concerning cost of living, after food and housing expenses, transport makes up the third-highest expenditure. Due to the inefficient and unreliable public transport currently, consumers are often forced to use their cars. It is estimated that households spend about 20 to 30 percent of their disposable income on private transport – instalments, petrol, services, maintenance, road tax, insurance, tolls and parking charges.

An efficient public transport would contribute substantial savings to the households.

The core of the public transport system is the bus system. It is the “last mile” of the system – that is from home to office, or home to LRT station, or LRT station to the office. It has been reported that in Kuala Lumpur, only 17 percent of consumers use public transport compared to 62 percent in Singapore. If the last mile of the public system is not reliable or worse not available, then consumers may have to use their private cars or taxis, which is often not affordable for low and middle-income earners.

Yet, the bus system has mostly been ignored by policymakers. Too often we are emphasising on the LRT and MRT but not on the last mile. Worse still, both in major and small towns, many communities have no bus service and this factor forces the purchase and use of private cars.

For a public transport system to be popular, it must be available. Fomca urges the Transport Ministry to undertake an audit on the current bus system. Which are the housing areas which have access to buses and which of the communities have no buses plying their housing areas? A feasibility study can be undertaken to ensure a comprehensive bus system to ensure that all major housing areas are indeed served by the bus system.

After the availability of the bus system, consumers would expect the buses to be reliable. The bus system must follow dependable schedules so that consumers can rely on the system to go to work or attend other important matters. For example, there should be buses at 20-minute intervals or less during peak hours. During off-peak hours, there could be half an hour intervals.

Consumers need to be assured that they can rely on the scheduled frequency. The public transport system should also be well-connected so that there is minimum inconvenience when a consumer needs to go from one point to another. There should also be ease in obtaining information of transportation schedules.

By building an efficient and effective public transport system, the government would ensure that consumers reduce their dependence on private cars, thus increasing their disposable income.

Other benefits of a good public transport system are reducing traffic congestion, reducing parking congestion, reducing traffic accidents, reducing building of road and parking infrastructure costs, reducing excessive energy consumption as well as pollution emissions. Instead of spending billions on reducing tolls, that money could be spent to upgrade the public transport system.

The public healthcare system, often touted as one of the best healthcare systems in the world, is facing several critical challenges. Three of the biggest challenges are not enough beds in hospitals resulting in patients being turned away due to shortage of beds.

It has been reported that there is a 15,000 bed shortage in the public health system. This has severe consequences for low-income consumers, for if they are unable to get access to public healthcare, they are forced to go to private hospitals, which would severely affect their financial wellbeing.

Secondly, patients have to wait long to meet the specialist, due to shortage of specialists as well as lack of appropriate facilities.

Thirdly, often due to no stock, consumers are directed to purchase their own medicines.

There is under-investment in public healthcare. Health expenditure is a mere 4.4 percent of the Gross Domestic Product, while the World Health Organisation suggests expenditures of up to seven percent of the GDP. About 65 percent of the population use the public health sector but is served by only 45 percent of registered doctors and about 25 percent of specialists. This under-investment in healthcare has severe consequences for the welfare of the consumer.

Private healthcare is exorbitantly expensive. Prices are not regulated and consumers end up paying a hefty sum for treatment. What is worse, many consumers do not have medical insurance. In fact, 38 percent of consumers pay their hospital bills by out-of-pocket expenses, considered the most risky form of payment. Out of pocket payments have risen from RM2.93 billion in 1997 to RM17.44 billion in 2013, a rise of about 29 percent per year. Further, medical insurance premiums have been skyrocketing, making it unaffordable to low and middle-income consumers.

Many consumers are falling into debt in their inability to pay their medical bills. One of the highest reasons for people falling into debt and seeking the assistance of the Credit Counselling and Debt Management Agency (AKPK) is high medical expenses.

An increase of spending, better budget management and reduction of corruption and waste would certainly enhance the public healthcare sector. Fomca hopes that healthcare is given serious priority by the government.

We also hope that more effective regulatory measures are put in place to control prices in private hospitals. If private hospitals are more affordable, it could be a viable alternative not only for the wealthy but also for all Malaysians.

Bringing up children in today’s environment is challenging. Most families today are nuclear families, without the support of an extended family. Often, both parents are working – just to make ends meet, thus the need for child care services. Additionally, there is a need to educate the child from pre-school until a university education.

The Edge in 2018 suggested that the cost from birth to university education is between RM393,000 to RM1.368 million. Taking a conservative cost of RM393,000, this would require an average of RM1,480 per month for 22 years to raise a child from birth to the age of 22 with a full university education. Child care centres have been reported to charge from RM700 to RM1,350 per child depending on the breadth of services.

To reduce costs for child care it is common for parents to send their children to unregistered child care services instead of licenced child care centres with all the risks of abuse, lack of competency and skills in taking care of children and this might affect the social, emotional and cognitive skills of children later.

The government needs to play a significant role in subsiding child care. Firstly, most families need childcare services. It is common for both parents to be working outside the home. Secondly, childcare services are expensive and often licence-centre based care is unaffordable for families of poor and modest means. Most importantly, most consumers/voters want the government to spend more money for the care and education of young children, for the good of families and everything that flows from stable homes and supportive environments for children and adults.

Centre-based childcare is expensive both in absolute terms as well as relative to family income. For a household earning an average of RM2160, this is a substantial amount of their income. This is made more difficult if there were more than one child.

It is proposed that for low-income families, the government provides subsidised child care and child support services, including education. The payment can be made directly to the child care providers. Families can make a co-contribution. Fomca strongly advocates that quality and affordable child care should be the state’s responsibility.

Further, the government to invest in consumer empowerment and financial literacy programmes to empower consumers to better manage their consumption in these challenging times as well as better manage their finances to ensure their financial well-being.

To address the cost of living issues faced by consumers by taking a more holistic and integrated approach, Fomca proposes two structural recommendations. The cost of living issue should be placed under the purview of the Prime Minister's Department, possibly under the Economic Department or formerly Economic Planning Unit. The unit should play a facilitative role to bring key agencies and stakeholders to identify the problems and seek practical solutions. As often, the issues involve multiple agencies and stakeholders, the central role of the Prime Minister’s Department can bring a strong planning and coordinating function to address the issues. Placing the issues in the Prime Minister’s Department also gives the message that the cost of living is a priority issue for the government.

Secondly, much too often there is a wide gap between the statements of policymakers and the experiences of a significant number of consumers. This disparity between what is happening on the ground and the announced statements can contribute to distrust in the government, as it might indicate that the policymakers do not have a sense of the sufferings of the rakyat. Fomca proposes that the government develops a consumer wellbeing index incorporating three components – subjective wellbeing, sense of economic insecurity of the rakyat and their trust in institutions.

This consumer wellbeing index can be constantly monitored to ascertain the rakyat’s true feeling on the ground. What is the level of satisfaction or dissatisfaction? Do the people feel that policy or programme seriously addresses their issue? Or is there merely a misunderstanding between policymakers and the rakyat that can be corrected through the correct information? 

Through monitoring of the pulse on the ground, changes can be made at the policy level or more effective communication can be undertaken. The purpose is to effectively address the burdens of the rakyat.

Consumers are suffering. The government should give priority to address their issues and concerns.

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The writer is the chief executive officer of the Federation of Malaysian Consumers Associations (Fomca). - Mkini