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Avoid the middle income trap

  • To deliver ourselves out of the middle income trap, we must put in a whole lot more effort in economic transformation and innovation.

Sin Chew Daily

According to the statistics department, the average monthly household income in Malaysia saw an improvement in 2016, but was still a long shot from the 2020 target.

Statistics showed that average household income increased from RM6,141 in 2014 to RM6,958 last year, while the target for 2020 is RM10,540.

This shows that while our household income continues to rise over the years, the rate of increase has been rather modest.

We can see that indeed Malaysia's household income has been expanding in tandem with the country's economic growth. However, compared to 2014, the national economy presented signs of slowing down in 2016, hence the slower growth in household income.

While the economy is expected to preform robustly this year, mounting inflationary pressure, unpredictable geopolitical factors, the government's fiscal performance as well as fluctuation in international capital flow are all immense challenges we need to encounter.

Meanwhile, domestic demand will remain the major propellant in the country's economic development, and private consumption continues to have the lion's share in the national economy.

Anyway, an increase in monthly household income cannot be construed as stronger private consumption, as this has been largely offset by the skyrocketing cost of living.

A big chunk of Malaysians' household income has been derived from wages, the growth of which is far outstripped by increases in goods prices. As we are still a middle income country, we need to expand our income sources, along with the national economic transformation, before we can see an actual change.

Statistics also showed that the incomes of all income groups have improved, in particular the B40. While this still fell short of the government's target, it nevertheless showed that the government's effort to enhance the income level of B40 has paid off. But again, this could also be due to more generous BR1M payouts.

Notably, where income distribution is concerned, our Gini coefficient retreated marginally from 0.401 in 2014 to 0.399 last year. Gini coefficient is an indicator that measures a country's income distribution.

To deliver ourselves out of the middle income trap towards the aspiration of a high-income developed state, we need to put in a whole lot more effort in economic transformation and innovation.

The government is now pushing for the development of digital economy by establishing a digital commerce platform to encourage Malaysian businesses to migrate in this direction so that people from all income groups can have the opportunity to exert their potentials, multiply their incomes and expand the overall economic cake.

In the meantime, there must be more rational taxation system and tax rates to effectively regulate wealth distribution in our society towards greater equality.

The soon-to-be unveiled Budget 2018 should serve as a good indicator towards this end.

 

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