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BR1M Created Direct Impact To The Economy

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KUALA LUMPUR – The implementation of 1Malaysia People’s Aid (BR1M), introduced in 2012, has showcased a direct impact in increasing household disposable income, which in turn, created spillover effects on private consumption and output of industries that produced consumer goods.

According to Info Box in the Economic Report 2016/17 released by the Finance Ministry, in 2014, the share of household earning below RM3,000 nearly halved to 24.3 per cent (2009: 52.7 per cent), while household earning between RM3,000 to RM5,000 has increased significantly to 30.6 per cent (2009: 23.1 per cent).

With the rising household income, incidence of poverty had been reduced to 0.6 in 2014, while Gini Coefficient improved further to 0.401 during the same period, compared to 0.441 in 2009, indicating the narrowing of income inequality.

(The Gini coefficient, a figure between “0” and “1”, is a widely used, simple and effective measure of inequality. The value “0” presents perfect equality and “1” represents perfect inequality.)

Based on the report, household disposable income is the main determinant of private consumption, accounting for an average of 67.4 per cent of growth in private consumption.

The increase in earnings of lower-income households will likely contribute to the growth in private consumption as they have a higher marginal propensity to consume.

A study by Bank Negara Malaysia indicates that household earning less than RM1,000 per month will, on average, spend 81 cent out of RM1 of additional income, which is much higher compared to the 18 cent for households earning more than RM10,000 per month.

As such, between 2012 and 2015 BR1M has resulted in an increase in private consumption by 7.1 per cent on average compared with 6.8 per cent without the cash transfer.

The report added BR1M cash transfers were intended to mitigate the impact of high cost of living on bottom 40 per cent households (B40).

The immediate impact of BR1M is reflected by an increase in household disposable income of the B40, which in turn translates into higher purchase of essential items such as food and housing.

BR1M also indirectly promotes the growth of industries that produce consumer goods and this is evident with the increase in output of consumer-related industries such as residential, food and beverages, motor vehicles, ownership of dwellings, accommodation, electricity and gas as well as finance and insurance.

BR1M is a form of conditional cash transfer as payment is provided to those households and individuals earning monthly income below RM3,000 and RM2,000 respectively.

In 2014, BR1M assistance was extended to households with a monthly income between RM3,000 and RM4,000.

As at end-September 2016, a total of RM5.4 billion was disbursed to 4.2 million households and 3.1 million single individuals. – BERNAMA

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