More than 50% of Malaysians are aspiring to get into the middle-class bracket, and as such, policies should be targetted at promoting shared prosperity as the country moves towards achieving its high-income nation status, said World Bank country director for Malaysia Ulrich Zachau.
He added that while Malaysia's income inequality has declined compared with the 1970s, it remained high compared with high income economies.
In his opening remarks at the release of the Malaysia Economic Monitor December 2014 Edition in Putrajaya today, Zachau said that while there was a large group of Malaysians who were no longer poor or vulnerable, they were not yet comfortable.
"If you ask them if they are happy, whether they have what they want, they will say no, they will say they want to be like the middle-class.
"What that means is having higher income, higher skilled jobs and having better education opportunities for their kids," he said, adding that 51% fell into this group known as the aspirational class.
He said that currently, more than 80% of Employees Provident Fund members have less than RM75,000 in their savings, which he added was not sufficient for a comfortable retirement.
As such, he recommended that the government introduce matching contributions for the lower income towards the retirement fund.
Zachau said this could be financed through a more progressive income tax system, adding that this was a policy choice Malaysia could make.
"Malaysia has used its rich natural resources and high economic growth to lift millions of households out of absolute poverty.
“It now has the opportunity to transform from a middle-income country into a middle class society, fulfilling the aspirations of lower-income families and workers to join a dynamic, better educated, higher-earning middle class that is already becoming the engine of Malaysia’s economic growth," he added.Kamal Salih world bank report middle class
Zachau also pointed out that only 16% of the aspirational group have post-secondary education compared with 55% of the middle- and upper-class group.
He said the aspirational class was made up of 68% Bumputera, 28% Chinese and 9% Indians.
Meanwhile, World Bank senior country economist for Malaysia Frederico Gil Sander said that given that most higher paying middle class jobs required a bachelor’s degree or at least a diploma, expanding access to post-secondary education was a cornerstone to creating pathways to the middle class.
He added that although some gaps between ethnic groups remain, income inequality within groups now explains over 95% of overall income inequality.
"Gaps in access to post-secondary education are also more pronounced between income groups.
"While the agenda of closing gaps between ethnic communities is not yet complete, broad policies such as boosting pre-primary enrolments and raising the quality of the poorest performing schools, are likely to have the largest payoffs," Sander added.
The bi-annual economic monitor with the tagline "Towards a Middle-Class Society" also noted that the implementation of the Goods and Services Tax (GST), lower oil prices and the commitment to further fiscal consolidation will constrain policy options to boost domestic demand in Malaysia.
Ensuring continued growth will therefore be more of a balancing act in 2015, and will depend on the country's ability to implement investments and structural reforms.
Further declines in oil prices are the key risk while tighter monetary policy and liquidity conditions abroad are also likely to impact Malaysia, the Malaysia Economic Monitor noted.
The monitor also noted that the implementation of GST is expected to lead to a slight pick-up in inflation in 2015, where inflation rate is projected to increase from an estimated 3.2% in 2014 to 3.8% in 2015 before moderating to 2.8% in 2016. Kamal Salih world bank report middle class
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