Is the income gap as big as people think?

Universiti Malaya economist Lee Hwok Aun suggested that the perception of growing income disparity could have derived from people’s observation of ostentatious displays of wealth. ― Picture by Saw Siow Feng
Universiti Malaya economist Lee Hwok Aun suggested that the perception of growing income disparity could have derived from people’s observation of ostentatious displays of wealth. ― Picture by Saw Siow Feng

KUALA LUMPUR, Nov 8 ― Compiled earnings data indicate that the gap between the rich and the poor in Malaysia remained marginal despite an increase in inequality over the last decade, Universiti Malaya economist Lee Hwok Aun said today.

Official statistics like the Household Income Survey and contribution to the Employees Provident Fund showed government policies have worked well to lower income disparity, Lee said before adding that complaints of a widening gap was based on mere perception.

“The perception of income disparity could likely come from the differences in factors like wealth,” the UM economist said in his presentation called “The puzzle of Malaysia’s declining income inequality”.

The Malaysian Gini coefficient on household income indicated a consistent downward trend for the past 20 years, with the lowest recorded in 2014, coincidentally just a year before the Najib administration implemented the unpopular Goods and Services Tax.

The Gini coefficient (alternatively called the Gini ratio or a normalised Gini index) is a measure of statistical dispersion intended to represent the income distribution of a nation’s residents, and is the most commonly used measure of inequality.

The consumption tax’s introduction in April 2015 naturally caused inflation to rise, triggering a strong backlash: middle and lower income earners claimed the tax, coupled with ringgit’s decline, diminished their purchasing power.

Lee, a fellow of economics at the Singapore-based Institute of South-east Asian Studies (Iseas), suggested that the perception of growing income disparity could have derived from people’s observation of ostentatious displays of wealth.

But he conceded that there was some truth to the perception, as EPF contributions and the sale of high-end cars show growing concentration of wealth within the top 10 per cent, but again insisted this was marginal.

The same was found within the public sector. Data from similar sources showed that concentration of wealth have grown among top civil servants.

“We found evidence of slight in growth of income inequality (in both public and private sectors) and observe a trend of increasing wealth concentration at the top it could be the source (for such perception),” Lee said.

But despite the success in reducing income inequality, Putrajaya has done little to communicate this, Lee said. This could explain why perception of a widening income gap persists.

“For some reason the government has not really trumpeted their success is the government disbelieving its own statistics? I leave that as a question,” Lee said.

Data gathering methods such as for the HIS, currently the most authoritative indicator to household income, do pose some problems for academics trying to map out a picture closer to reality.

Lee said those surveyed may not be keen on revealing their income, making the data less credible.

The economist also suggested that studies on income disparity include corporate earnings and wealth disparity to get a better picture of the economic reality facing Malaysians.

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