Estimated reading time: 8 minutes
Malaysia’s subsidy system is changing as the Madani government introduces a new system called PAKW (Perbelanjaan Asas Kehidupan Wajar). This system calculates future subsidy distribution based on net disposable income rather than the income brackets used in the old B40, M40, and T20 framework. This blog provides a perspective on whether this new system will improve subsidy targeting and its impact on Malaysia’s wealth gap.
TABLE OF CONTENTS
What’s Happening with the Subsidy System Now?
In the most recent Budget 2025 announcement, the Madani government has announced that the top 15% of households will be exempted from petrol subsidies. If the targeted petrol subsidies are implemented smoothly, the T15 or T20 groups can expect further exclusions from other subsidies.
For years, the B40, M40, and T20 framework has been used to classify your position in society. It serves as a measurement that clearly distinguishes your socioeconomic standing from that of your relatives or friends.
Recently, the Madani government has also introduced a new system that is an important matter for all of us. This is because it will determine our eligibility for subsidies, ultimately influencing whether our lives become easier or more challenging.
The Flaws of the B40, M40, T20 System
The B40, M40, and T20 system has seemed effective over time. However, it does not adequately consider important factors that can influence a person’s financial situation, such as household size and individual circumstances.
For example, let’s compare the situations of Jenny and Liza. Both earn RM5,000 a month. Jenny lives in the heart of Kuala Lumpur, has no children, and her parents are still working. Liza, on the other hand, lives in a smaller town like Kota Bharu, Kelantan, supports two retired parents who require medical care, and has two young children to care for.
Based on these situations, we can see that even though both Jenny and Liza earn the same income, their expenses are completely different. However, under the current subsidy system, none of these differences are considered.
Here’s the problem. If you are the government and decides to give RM10,000 to everyone, it would have little impact on the wealthy, while for the poor, it would not solve the long-term challenges they face. Issues such as inflation, stagnant wages, and the high cost of living would eventually cause the situation to return to its original state.
A study conducted in March 2024 revealed that over 65% of Malaysian fresh graduates earn a salary of less than RM2,000 per month. This makes it very difficult to survive in city centers.
What is PAKW?
Therefore, to ensure the right support is given to the right people, we first need to adopt a net disposable income approach. This means deducting all essential expenses, such as food, rent, and bills, from an individual’s income to determine their actual financial capacity. This is exactly what the PAKW system aims to achieve.
PAKW stands for Perbelanjaan Asas Kehidupan Wajar, or Basic Expenditure of Decent Living. According to news reports, it is a newly-created cost of living index calculated based on 419 items, covering essentials such as food and clothing, as well as utilities and transportation. You can calculate your basic expenditure using the tool available on PAKW website.
How To Calculate Basic Expenditure?
You simply need to input your personal details into the PAKW calculator, such as the number of household members, your area of residence, and the age and gender of each member.
For instance, if I have a wife and three kids, this means my household consists of five people, and we live in a small city like Klang. After entering all the details into the calculator, it shows that my family needs RM7,000 a month to live decently.
Decent : That basic expenditure should fulfill needs, wants, and the ability to participate in society.
This means you can do more than just survive. Living a decent life allows you to occasionally eat out, enjoy a movie, pursue a hobby, and celebrate festive seasons like Chinese New Year, Hari Raya, or Deepavali with joy and comfort.
However, the calculation does not include savings, investments, or loan repayments. For example, if I estimate my monthly savings to be RM2,000, my total expected expenses, including disposable income, would amount to approximately RM9,000. This provides an overview of how much I need to budget for each month.
You can use this calculator to calculate your own numbers, which will help you better understand your current situation and plan for the future. This tool is especially useful when you’re considering changes like switching jobs, moving to a new area, or having another child. It allows you to compare your financial situation before and after these changes, helping you estimate how much you can save or spend.
My Verdict
In my opinion, PAKW is a step in the right direction. It’s a great tool as it provides a customized look at your expenses based on your specific situation, household size, location, and needs.
However, it is not perfect. Unlike the B40, M40, and T20 system, it does not offer a way to compare where you stand financially relative to others.
One way PAKW can help is by enabling the government to manage subsidies more effectively. For example, as mentioned earlier, the exemption of petrol subsidies applies to the top 15% of households. If this exemption is implemented smoothly, the T15 or T20 groups could also see further exclusions from subsidies for other items, such as electricity, cooking oil, chicken, eggs, and more. At that point, debates might arise over who is truly classified as T15 or T20.
With PAKW, it becomes possible to provide a clearer picture of who can afford to be excluded from these subsidies, based on their net disposable income. Ultimately, this tool can help the government create a more accurate and fair income classification system.
Personally, I think targeted subsidies are important because they can help close the wealth gap, reduce crime, and promote social stability, which benefits everyone. However, if not implemented with balance and fairness, they could lead to several issues.
One potential problem is that the wealthy might look for ways to evade taxes or even consider emigrating to other countries to protect their wealth. If this happens, it could result in a significant loss of high taxpayers, leaving the government with reduced revenue. In turn, this might force the remaining population to bear a higher tax burden, or in the worst-case scenario, it could lead to the government struggling with insufficient funds.
Second, if this subsidy system overly benefits the poor, people might tend to work less or not work at all. This is because if everyone is able to live in a satisfying environment with help from others, there is no reason to work hard anymore. Therefore, it’s a double-edged sword, as every policy has to maintain a good balance.
Conclusion
In summary, the numbers in PAKW need to reflect real-life situations. For example, the data estimates food costs in Selangor at RM507 per person per month, which is less than RM17 a day. However, most working adults I know spend over RM600 monthly in Selangor. Therefore, closer attention is needed to ensure the system is accurate and effective. If you are paying a very high bill but the government assumes it is low, the system becomes pointless.
Checkout the YouTube videos for a visual guide to this blog!
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