The Middle 40 Percent Income Group

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I tabled the Budget 2016 some three weeks ago. It was one of the more difficult budgets for the Ministry of Finance and I had to come up with – considering the constraints that we have with reduced receipts from oil and gas sources as well as the demands that the country had in view that the Budget is the first under the 11th Malaysian Plan.

But we were fortunate. Although the income from GST did not quite make up the shortfall, it was sufficient for us to have a well-rounded budget for all.

The 11th Malaysia Plan was designed to take us to what we aspire to achieve by the year 2020. The annual budget between now and then must be able to bring us closer and ever closer to realising our high-income advanced economy status.

As you may already know, no country can reach progressive growth, economically and socially, without the full participation of the middle class. The size and strength of the middle class is the quintessential measurement of a country’s economic strength. The middle class’ social and cultural habits and value system can essentially determine the course of a country’s history.

In any capital market enterprise economy, as is Malaysia, the middle class is the driver of the economy. The middle 40 percent of our household income group or M40, is extremely important to the nation’s well-being. The M40 is central to our consumption spending and private investments. The M40 also serves as a critical pool for talent, investment and entrepreneurship.

Last year, in Budget 2015, the Government reduced the individual tax rates between 1.0% to 3.0% and to help the lower-income, we raised the lowest taxable bracket to a minimum of RM4,000. Those earning below this threshold need not pay any income tax.

Building from the measures introduced in the previous year, the Budget 2016 introduced additional measures to further alleviate the financial challenges faced by the M40:

• Tax relief for each child below 18 years of age is increased from RM1,000 to RM2,000 from year of assessment 2016;

• Tax relief for individual taxpayer whose spouse has no income is increased from RM3,000 to RM4,000;

• Tax relief up to RM5,000 per year for medical treatment and care of parents who are ill;

• Tax relief for children who provide for their parents is given total tax relief of RM1,500 for the mother and RM1,500 for the father;

• Tax relief from RM6,000 to RM8,000 for each child above the age of 18 years who is studying at local or foreign institutions of higher learning; and

• Tax relief from RM6,000 to RM8,000 for disabled child above the age of 18 years who is studying at local or foreign institutions of higher learning

In addition to this, the Government has also been emphasizing home ownership for all Malaysians for both the B40 or M40 groups.

In the recently tabled Budget 2016, the Government has reiterated its plan with regards to home ownership. As an example, the Budget 2016 has allocated RM 200 million for the First House Deposit Financing Scheme under the Ministry of Urban Wellbeing, Housing and Local Government (KPKT) to assist first-time buyers of affordable houses to pay the deposit.

I have also announced another significant policy decision which is the increase of minimum wage throughout the country. This is an important step as it will not only help increase the income of those who are struggling to break into the middle class bracket, but it would also cause employers to raise wages through “spillover effects” throughout the wage spectrum.

In addressing the issues of M40, the private sector also plays an important role in ensuring Malaysians are paid fairly. Currently in Malaysia, wages as a percentage to GDP stands at 34% in 2014, and this is considerably lower than the levels of developed nations, which we aspire to become. As such, I call for employers to be more inclusive in the sharing of the economic pie and company success so as to achieve the target of having our employees’ compensation of at least 40% to GDP by the year 2020. With this, employees can expect a more equitable salary from their companies so long as that they do not compromise on productivity.

With the theme “Prospering the Rakyat”, Budget 2016 presents an inclusive budget that addresses the realities of today’s economic conditions. It is important for the Government to ensure that the M40 will maximise its full potential in realising their aspirations that they too are being provided with the financial cushion in order to increase their purchasing power and the option to save for their retirement.

The strategies outlined in Budget 2016, would encourage upward social mobility, while at the same time, encouraging family values that are true to our Asian roots.

To have a strong and growing economy, we need a strong and growing M40.

Wassalamualaikum Warahmatullahi Wabarakatuh.

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