In 2023 Economy Minister Rafizi Ramli had suggested phasing out the T20, M40 and B40 income classifications which did not accurately reflect the actual situation on the ground.
While the current T20, M40 and B40 classification was based on fixed income, it does not accurately reflect the household disposable income capability of Malaysians. Using net household disposable income as a measurement will better reflect the financial realities of Malaysians in the low- and middle-income categories.
How does DOSM arrive at these income bands?
Here’s what you need to know about the government moving from T20, M40, B40 classification to household disposable income categories.
The Department of Statistics Malaysia (DOSM) released its Household Income & Basic Amenities Survey Report 2022 last year, which provides updated figures for classifying these income groups. Note that these figures refer to household income (the average household size in 2022 was 3.8 persons), not individual income:
According to DOSM, in 2022, the mean (average) income across the household groups are:
B40 – RM3,401
M40 – RM7,971
T20 – RM19,752
Previous fixed income band classifications are as follows:
|Less than RM2,499
|RM2,500 - RM3,169
|RM3,170 - RM3,969
|RM3,970 - RM4,849
|RM4,850 - RM5,879
|RM5,880 - RM7,099
|RM7,110 - RM8,699
|RM8,700 - RM10,959
|RM10,960 - RM15,039
|More than RM15,039
Updated household groups by income share are as follows:
The household income report also raised Malaysia’s average poverty line income (PLI) in 2022 to RM2,589 from RM2,208 in 2019. DOSM also highlighted that Malaysia’s absolute poverty rate is at 6.2% in 2022. This is a decrease from the 8.2% recorded in 2021. This means that almost 6 out of 100 households in Malaysia still could not afford to meet basic needs for food.
These income classifications matter because they help the government determine how to allocate aid packages.
How much do T20, M40 and B40 households earn?
In line with the government’s aim to monitor net disposable income going forward instead of the T20, M40 and B40 classification, following are the breakdown by state and income class for this category.
The national mean (average) household disposable income in Malaysia in 2022 was RM7,111. But this average also varies by state. As you can see, the differences in income between each state can be huge.
Applying this to the household disposable income range, DOSM found there is no change compared to 2019 in the percentage whose household income is below RM5,000, while there was a slight increase in the percentage of households whose income range from RM5,000 to RM1o,000. There was also a slight increase in the percentage of households whose income range from RM10,000 to over RM15,000 monthly.
Is the income gap widening?
There’s a big income gap between the lowest-earning and highest-earning income groups. Is this gap getting worse? Let’s look at the facts:
1. Income inequality has declined since the 1970s
The Khazanah Research Institute’s (KRI) State Of Households 2018 report stated that household income in Malaysia has steadily increased from 1970 to 2018. Malaysia’s Gini coefficient (a measurement used to represent income inequality – a higher number means that the income gap is larger) fell from 0.513 to 0.399.
This means that in the past few decades, household income has risen, and income inequality has declined.
2. Why doesn’t it seem like income inequality has improved?
Okay, if official statistics say that income inequality has declined, why does it feel like the rich always get richer, and the rest of us are struggling to catch up? According to KRI, that’s because of the difference between the relative gap and absolute gap. For example:
- A low-income household earning RM1,000 last year triples their income to RM3,000 this year
- A high-income household earning RM10,000 last year doubles their income to RM20,000 this year
Last year, the high-income household would have earned 10 times more than the low-income household. This year, the high-income household earns 6.7 times the low-income household, lowering the Gini coefficient. This means that the relative gap has narrowed. But because the absolute gap (an earnings difference of RM9,000 last year vs RM17,000 this year) has increased, it doesn’t feel like inequality has improved.
3. There’s been an uptick recently
Although income inequality has improved over the past few decades, DOSM’s latest household report states that there’s been an uptick in inequality.
It increased to 0.407 in 2019, compared to 0.399 in 2016.
Household income is higher in 2022
The COVID-19 pandemic has majorly affected many Malaysians’ incomes in 2020 and 2021. The pandemic had caused many Malaysians to move into lower income categories but the situation has improved in 2022.
DOSM reported that median household income of Malaysians increased by 2.5 per cent in 2022 to RM6,338. While the household income is rising, it is at a lower rate compared to the pre-pandemic years. In 2019, household income rose at 3.9%.
The introduction of PADU
With that being said, the current government has decided to phase out the B40/M40/T20 classification as of 2024. This is mainly because the old classification is rather outdated and is insufficient in determining accurate income levels. For the most part, the B40/M40/T20 classification is oversimplified, not considering factors such as demographics, number of children, locality, etc. This results in a lot of exclusions in terms of subsidy and financial aid.
In order to minimise subsidy exemption errors due to the classification of salary categories, the government will instead take other measures, including an increased reliance on the Central Database Hub (PADU).
PADU was also launched in early 2024. The database was created as a means to help the government digitalise its systems and reduce cost and wastage. However, the big game changer with the launch of PADU is that it will help the government with retargeting subsidies, ensuring that the distribution of subsidies are done in the fairest manner possible.
During the launch, Prime Minister Datuk Seri Anwar Ibrahim had said that one of the biggest issues that the government faces is getting financial aid to the proper targeted groups. Money that is being spent by the government is meant for Malaysian citizens, but the government has acknowledged the possibility that millions of non-Malaysians are benefitting from financial aid as well. Considering that Malaysia spends up to RM80 billion in subsidies, having aid go to the wrong people is highly unsustainable.
The launch of PADU is not without controversy however. Questions have been raised regarding the security issues that may come with the database, especially due to concerns stemming from past data leaks. According to reporting by The Star, the middle-class in particular is especially resistant to registering on PADU, citing concerns over security and privacy.
However, the government has reassured Malaysians that PADU is regulated by existing laws, such as the Personal Data Protection Act (PDPA).
This article was first published in 2020 and has been updated for freshness, accuracy and comprehensiveness.