KUALA LUMPUR: According to government data, income inequality among its people -- as measured by the Gini coefficient -- has been trending down in the past four decades, from 0.513 in 1970, when the New Economic Policy was introduced, to 0.401 in 2014. A zero implies everyone has the same amount of wealth and 1 means the centralisation of wealth in one household.

But is income inequality really going down? A 2014 World Bank Study, co-authored by economists Dr Muhammed Abdul Khalid and Lee Hwok-Aun, seem to indicate the reverse is true if we look at Employees Provident Fund's savings, where the Gini coefficient has risen from 0.643 in 2003 to 0.661 in 2013.

EPF's own data, culled from its Annual Report 2016, showed 0.4% of its members -- that's 28,727 EPF members having about RM47.2 billion worth of savings in EPF. They have more money than the combined savings of the bottom 51.9% of its members, comprising 3.6 million people who collectively owned RM43.9 billion in the fund.

EPF data also showed that two-thirds of its members aged 54 have less than RM50,000 in their EPF account while 2 in 10 have less than RM8,000.

Development institutions said income inequalities hold serious costs, not just for the poor but also for the economy and society as a whole, wrote The Edge Malaysia's associate editor Rash Behari Bhattacharjee and writer Samantha Ho in the weekly's latest cover story titled, 'The growing wealth gap', for the week of Nov 6-Nov 12.

Muhammed, who is the managing director and chief economist of boutique policy research and consulting firm DM Analytics Malaysia, cited several reports that explain these consequences, like The Asian Development Bank's 2012 report, which said: “High and rising inequality can curb medium-term growth by reducing social cohesion, undermining the quality of governance and increasing pressure for inefficient populist policies.”

Another 2014 World Bank report warned: “Inequality, especially deprivation, may intensify the grievances felt by certain groups or can reduce the opportunity costs of initiating and joining a violent conflict.”

Muhammad said Malaysia's GDP growth -- which stood at a commendable 4.2% last year and beat all expectations when it climbed to 5.8% in the second quarter of 2017 -- does not necessarily translate into a corresponding rise in the standard of living of a major segment of the population. “What matters are not headline GDP figures, but the consequences and effects of economic growth on the rakyat’s well-being,” he said.

Case in point: despite the resilient pace of economic growth last year, the wages and salaries of Malaysian workers grew less than 1%, or about RM17 in real terms, Bank Negara Malaysia data showed. Likewise, the 4.2% GDP growth rate is belied by persistent joblessness, which rose 13% last year, according to the central bank.

Against that, Malaysian households have a razor-thin savings rate of 1.4% in 2013, according to a Khazanah Research Institute report released last year. Bank Negara Malaysia's data supported this, as it showed that only 1 in 10 Malaysians can survive more than six months if they lose their main source of income. In comparison, the US household savings rate, which is generally considered to be very low, is at 5%.

Muhammed said Malaysia must focus on inclusive growth instead of merely aiming to become a high-income nation. In his book The Colour of Inequality (2013), Muhammed wrote: “The future does not look rosy for Malaysia; the current policies are encouraging wealth disparity between rich and poor, and between ethnicities ...Unless bold and drastic actions are taken urgently, a harmonious future for Malaysia is uncertain. There must be an urgency to give every Malaysian economic security, a better and sustainable future that is essential for a stable, harmonious and prosperous society.”

To read more on this topic and what can be done, or to get a look at the intra-ethnic income gap, which is highest among the Chinese compared with bumiputeras and Indians, pick up a copy of The Edge at newsstands near you today. Or save by subscribing to us for your print and/or digital copy.

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Note: The headline and third paragraph of this story, as well as the chart used have been corrected after EPF clarified that the top 0.4% of its account holders does not own more than half the savings in the fund, as was originally stated. The error is regretted.