The Squeeze of the Middle: Pressure on the M40 Group

In Malaysia’s economic family, the M40 embodies the classic ‘middle child syndrome.’ Stuck between the elites of the T20 and the struggling B40, the group often finds itself sidelined and overlooked, craving recognition and assistance to aid them from sinking into deep waters. 

To ease the government in allocating aid packages, the nation was split into three income categories of bottom 40% (B40) or low-income households, the middle 40% (M40), and the top 20% of earners. The income brackets are further split into tiers, with B40 being split into B1 (lowest earnings) to B4 (highest earnings), M40 being split the same way, leaving T20 with only two categories of T1 (lowest earnings) and T2 (highest earnings). To be placed in the M40 income bracket nationwide, a household’s income would need to range between RM4,851 - RM10,970. 

According to the HIES/BA survey in 2019, the numbers tally with the income brackets where 40% of households were in the lower B40 bracket, another 40% in the M40 bracket and the last 20% in the T20 bracket. However, that quickly shifted following the heavy impact of the COVID-19 pandemic, throwing a whopping 20% of M40 households into the B40 bracket while 12.8% of the T20 bracket slipped to the M40 bracket in 2022. 

Although the Malaysian population has been struggling amidst the economic recovery for the years after the pandemic, the middle-income group has gotten an ever shorter end of the stick, sandwiched between the T20 group who has the wealth to cushion the economic pressures and the B40 group who receives the most of the government aid. 

Causes of the Middle Income Squeeze

While there are other sources of income for the Malaysian government, a large proportion of it comes from its own citizens – through the form of taxes. The country practises a progressive tax rate system for individual taxes, increasing as income increases. Although the structure is intended to distribute the tax burden equitably amongst the population, the struggling M40 bracket often find themselves stuck in a dilemma where their earnings catapulted them into higher tax brackets, yet not enough to grant them substantial income tax breaks that were enjoyed by higher-income individuals. Furthermore, the situation is compounded by the impending increase in Malaysia’s Sales & Services Tax (SST) from 6% to 8%, underscoring the financial strain. 

Unlike the bottom 40% of households who receive financial aid and support from the government, the M40s don’t often benefit from these programs, being that they are of higher income. As living costs surges and much of the population struggling to stay afloat, the government introduced Padu, in an effort to streamline aid distribution and to ensure that financial aid falls directly into the hands of those who need it. 

Padu takes into account monthly household expenses, dependents and cost of living according to location, forgoing the former method of income tier classification for financial aid. While this is a feat in itself, many M40s singles with heavy commitments, expressed concerns that they may be ineligible to receive any form of assistance due to the uses of ‘households,’ and ‘dependents.’ With much of the M40 population struggling to stay afloat, amidst the vague descriptions of the Padu programme, eyes are now on the upcoming Budget 2024. Witnessing an allocation of RM393.8 billion, many are hopeful for a more nuanced strategy in helping the M40 group.

Pressures of the M40 Bracket

As the country experiences a surge in living costs from inflation, and external factors like the depreciation of the Ringgit and the Russia-Ukraine war amongst many others, it is without doubt that the M40 group’s struggles are just taking off. Despite the extensive government initiatives to provide housing for low-income families, the M40s often find themselves excluded due to their income levels. 

As it stands, the biggest expenditure portion of the M40 group is the payment of housing loans and rental, with house prices standing at RM200,000 in the rural areas, going up to RM700,000 in urban areas. However due to the exclusion in government initiatives in securing housing, it results in much of the group into a very limited range of housing options, having to venture into expensive private housing or rental accommodations, two that could intensify their economic squeeze even further. 

This extends further into education options, weighing heavily on the shoulders of the M40. Although there are various forms of aid in the market for students under the B40 category, M40 households are expected to be responsible for most, if not the full tuition for their children’s further studies. Paired with the surge in living costs for basic necessities, reduced housing options and limited payment options for higher education, it seems as though the M40 has nowhere to run. 

Expectations on the Budget 2024

Nevertheless, a situation as grand as the squeeze had taken the limelight for the 2024 Budget, which is expected to be tabled in October 2024. Following statements made by Malaysian United Democratic Alliance (Muda) president, Syed Saddiq that states the Budget 2024 will only sandwich the M40 group’s income further, Datuk Seri Ahmad Zahid Hamidi has refuted the claims and instead stated that the Budget 2024 would benefit the group. 

Focused on empowering citizens to venture toward entrepreneurship, the government aims to prioritise strengthening the middle class and SME to alleviate the burden of rising cost of living. Moreover, targeted subsidies that include Bantuan Awal Persekolahan (Early Schooling Aid) and others are to be introduced. While hope and doubt remains in the air, there’s much anticipation for the Budget readings for the parliament. 

Conclusion

Despite the years, the lingering effects of the pandemic remain within reach, leaving many, including the M40 group, still grappling with its aftermath. Hindered by various obstacles such as limited government support and financial assistance, they face uncertainties regarding the year ahead, placing their hopes on the upcoming fiscal strategy. While only amounting to 40% of the population, the middle-income households are essential for the country’s prosperity, playing a pivotal role in driving economic growth and stability through their spending power. As the nation navigates through economic uncertainties, it is without a doubt that prioritising support for the M40 is imperative not only for the well-being of its members, but also for the nation’s overall trajectory.