This article first appeared in The Edge Financial Daily on October 16, 2018 - October 22, 2018

KUALA LUMPUR: There are huge disparities in the income threshold of the Middle 40 (M40) in the various states across Malaysia, according to Khazanah Research Institute’s (KRI) latest report.

The report entitled “The State of Households: Different Realities” showed that the average national household income for the M40 is between RM4,360 and RM9,619 a month based on the 2016 household income distribution data. But on a state level, this varies largely.

“If we consider the income distribution at state level, the equivalent state-level thresholds vary significantly (see charts).

“For instance, the monthly income of the top 20% (T20) households in certain parts of the country may have an income level similar to that of the bottom 40% (B40) household in other parts of Malaysia.

“Therefore, policy must be set within the right local context, taking into account different income thresholds in different states,” KRI said.

It cited the example of a household in Kelantan that earned just above RM5,870 is considered to be in the T20 households.

However, the same household would be part of the M40 on a national level, and in the B40 households if it is in Kuala Lumpur.

KRI said only Melaka, Johor and Penang coincide roughly with the national threshold.

“This means only around 20% of the population in the country can be roughly segmented using the national threshold into three income groups,” KRI said.

KRI noted that this of course does not yet take into account the fact that the costs of living in the states may also be different and hence the quality of life may not necessarily reflect the income directly.

“Nevertheless, the key point is that different states have different household income thresholds. A one-size-fits-all threshold applied uniformly across Malaysia for public policy such as social welfare, affordable housing, education policy, and others will be a gross over-generalisation of the diverse set of household income thresholds in the different states in Malaysia.

“Within the different states of Malaysia, the biggest difference in income is associated with urbanisation, while across Malaysia the biggest difference is associated with education levels,” it added.