The 15 richest families in Malaysia control assets worth 76 percent of the entire gross domestic product (GDP) of the country

Khazanah Research Institute Director Dr Muhammed Abdul Khalid said this at a Consumer Conference organised by the Federation of Malaysian Consumers Association yesterday.

He added that in Singapore it was 48 percent and Philippines, 47 percent.

“Unless we have an equalising policy, mainly in taxation, the gap will widen. Just look at the richest billionaires. One decade ago, the majority of the young billionaires became rich because they created something, but now, majority of them became billionaires due to inheritance.”

While the rich monopolise the national economy, he added that Malaysia’s household debt was 87 percent of the GDP last year.

Household debt

Malaysia’s household debt is about four times that of Indonesia, and about same level as in the United States.

“It’s unfortunate that the debts start accumulating as soon as the student starts university. Can we reduce the level of household debt?” he asked during his panel discussion.

“Debt is not necessarily bad, if it is used for investment purposes, and gives you returns. High earners borrow for investment, mainly for buying houses.”

But for low income earners, debt is used for consumption. Data from Bank Negara shows that the leverage for the low income households is about seven times.

“The interest rates they pay are very high. We go into debt quite early. On average, a freshly minted graduate will have about RM25,000 in debt the moment he is done with school” he said.

Financial literacy

A few measures can be undertaken. Muhammed proposed non-financial institutions that allow consumers to buy using credit, to publish the annual percentage rate, so that consumers know how much interest they pay.

“Now, what been advertised is that if you buy a TV, you pay RM5 per week, a fridge RM10 per week. That is misleading.”

He also said that raising the level of financial literacy was important.

“A survey by a local university showed that most young adults consider credit card payments as not being important. It ranked last among the priorities of expenditure”.

He also revealed that household income gap is the highest among Chinese, followed by Indians, then the bumiputera, citing the Economic Planning Unit.

The expenditure gap is quite glaring, he added.

“For instance look at the car sales. National car makers Proton and Perodua registered slower sales. But Porsche sales in Malaysia were up 180 percent this year. Mercedes Benz registered nearly 109 percent growth in Q3 compared to last year.”

To counter this high income gap, a few measures could be undertaken. He suggested that taxation must be fair. “The truth is, taxation policy in this country favours the rich.”

The gap between regions and states is also quite obvious. “For instance, KL has GDP per capita of Korea, yet in Kelantan, the GDP per capita is slightly higher than Sri Lanka.”

For this reason, he said that the budget should focus on spending in the northern and east coast of east Malaysia, mostly on infrastructure.

“Perhaps rethink the high speed rail and focus on improving the connectivity and services between states and inter-cities.