RISING LIVING COST IN MALAYSIA

BEEB1013
PRINCIPLES OF ECONOMICS

GROUP: AC

TITLE:

RISING LIVING COST IN MALAYSIA

SUBMITTED TO:
MADAM SITI NORLIZA BINTI JUMALI

GROUP MEMBER’S NAME:

NAME MATRIC NO.
MUHAMAD HAFIZ BIN MOHD RADZI 252631
NORATIKA BINTI BUKARI 253356
GOH CHONG QI 253547
SITI FATIHA BINTI AZAHA 254335
PANG XIAO XUAN 254739
 RISING LIVING COST IN MALAYSIA

TABLE OF CONTENTS

NO. CONTENTS PAGE

TABLE OF CONTENTS

1.0 INTRODUCTION 1

2.0 FACTORS AFFECTING THE RISING COST OF LIVING IN 2

MALAYSIA

3.0 CURRENT ISSUES OF RISING COST OF LIVING IN 4

MALAYSIA

4.0 IMPLICATIONS OF RISING LIVING COST IN MALAYSIA 6

5.0 STEPS TO OVERCOME RISING COSTS OF LIVING 8

6.0 CONCLUSION 10

REFERENCES 11
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1.0 INTRODUCTION

Cost of living can be defined as typical cost for basic items. It is the measure of cash

expected to manage a specific level of living, including fundamental costs like housing,

sustenance, charges and medicinal services. Cost of living is often used to contrast how costly

it is with live in one city versus another district. Cost of living is attached to wages, as pay

levels are estimated against costs required to keep up a fundamental way of life all through

particular geographic locales. Cost of living can be a critical factor in individual riches

collection, in light of the fact that a littler pay can go further in the city where it does not cost

a lot, while an extensive pay can appear to be deficient in a costly city.

Cost of living in Malaysia is moderately low contrasted with neighbouring countries

such as Singapore and Indonesia. In other hand, the differences of cost of living through

years shows a drastically increment.

In 2014, more than in the earlier years, getting by on your month to month salary is a

noteworthy worry for expats. Imported merchandise, sustenance, transportation, lodging, and

ordinary costs are on the ascent and add to the average cost for basic items in Malaysia.

Recent years, the administration moved back sponsorships for nearby organizations. These

thus passed on the increasing expenses to their clients by raising their costs by around 20%.

In the meantime, numerous individuals have gotten an increase in salary to adapt to

the rising living expenses in Malaysia. Particularly non-official labourers ought to get a

reward from their organizations to enable them to adapt. Tragically, the sharp ascent in

Malaysia living expenses is amazingly overpowering for some individuals and the slight

boost in salary is insufficient to have any kind of effect.

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2.0 FACTORS AFFECTING THE RISING COST OF LIVING IN MALAYSIA

There are some factors that affecting the rising cost of living in Malaysia. First,

unequivalent pay rise. This unequal salary increase has resulted in the rising cost of living for

the people today. In the city, wages have become low as a result of high inflation. Kuala

Lumpur is one of the cities that have the same impact as a result of rising urban population

rates. Increased prices of essentials and food items, coupled with daily transportation costs

and home rental, are increasingly pressing on our lives. Increased prices of goods have

reduced the needs of the people in some areas. It causes the underprivileged or poor people to

work harder to support themselves and their families.

Next, the tax structure. As the cost of living increases, the tax issue is definitely worth

the attention. Taxes imposed, whether income tax, corporate tax, goods and services tax

(GST) or other forms, all contribute to the cost of living of the people. If the GST rate

declines, the cost of living will decrease. If the income tax rate is reduced, then the disposable

income of the people will increase, thereby helping to reduce the burden of living. In

determining rate taxes, the government would take into account various factors. As a

government, policy makers cannot arbitrarily promise such a decline as done by some.

Research needs to be done first to ensure that the budget is laid out is prudent. Among the

important economic principles to consider is a theory called 'Laffer Curve'. This theory is

named after Arthur Laffer, a Western economist, but it has been discussed by Ibn Khaldun,

the late Islamic philosopher, since the 14th century. The 'Laffer Curve' theory says that if the

government wants to increase state revenues from taxes, taxes should be not too low and not

too high. High tax rates do not necessarily produce high-income countries. When the tax rate

exceeds the optimum level and becomes too high, the people will find a way to avoid paying

taxes.

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Moreover, government policies. Government policies that allow the entry of foreign

giants can also cause the destruction of the country if it is not properly monitored. The

inclusion of large buildings such as Giant, Tesco, Carrefour and others have shut down and

spoiled the opportunities of the local small business economists. In fact, through the entry of

these companies will open up job opportunities, but what it means if it is taken by expanding

foreigners. Finally the locals will cling to the edge of the bushel. It loses business

opportunities, now losing job opportunities. Thus, the government needs to be wise in

addressing this issue.

Furthermore, uncertainty in oil prices. Lower global oil prices also have a big impact

not only on government revenues but also on the cost of living of the people. When global oil

prices are low, the currencies of countries categorized as oil commodity countries will also be

affected. This can be felt in our country when Ringgit Malaysia (RM) this year is weakening

against the US dollar. As a result, imported products are increasingly expensive. So, for this

reason the rising cost of living is felt by the people.

Last but not least, the fall of the ringgit currency. Some say that the Ringgit

movement is affected by the movement of world crude oil prices. It is true that the value of

the ringgit is shrinking as the world's crude oil price declines in its early stages. But in view

of current developments, the ringgit's movement is no longer in line with the world's crude oil

price changes. For example, world average oil prices have risen from US $ 26.50 a barrel in

January 2016 to US $ 51.16 a barrel in December 2016. On average, the average value the

ringgit exchange declined from RM4.35 to RM4.45 per US dollar in the same period. There

were other factors other than world crude oil prices affecting the ringgit movement. Investor

confidence in the ringgit market needs to be viewed seriously. The country's governance and

other negative issues are likely to affect the perception of external investors on the ringgit

market. Hence, the continued decline in the value of the ringgit can negatively affect the cost

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of living of households. Added to the oligopoly market structure that also influences prices

through indirect control over the raw material supply chain.

3.0 CURRENT ISSUES OF RISING COST OF LIVING IN MALAYSIA

There are some current issues of rising cost of living in Malaysia. The first issues are 1MDB

and political corruption in Malaysia. 1 Malaysia Development Berhad (1MDB) scandal has

used $3.5 Billion of tax revenues, which show that the country’s political corruption is high.

Malaysian Prime Minister Najib Razak who remains unaccountable for the 1MDB scandal

had been watching by everyone.Racial and religious issues have been “pop out” on the

surface of Malaysian politics since this issue happen.

In Malaysia, many people believe that welfare and political power are inalienable.

Minority protests against Najib for financial corruption may cause a threat to Malay political

authority. Last year, there were 200,000 Malaysians which most of them were Chinese

Malaysians protested in Kuala Lumpur to demand transparency and accountability of Najib

and his government.(Diana Batchelor, 22 Nov 2016, Paragraph 8) This movement was

organized by Bersih. This protest was declared illegal and Bersih’s website had been blocked.

This is because Bersih protestor is being said will threat the Malay Muslim’s right to welfare

by Najib.

Corruption was a common phenomenon in Malaysia’s politics. For instance, Mara property

scandal where government officials pocketed RM13 million. .(Diana Batchelor, 22 Nov 2016,

Paragraph 11) Behind the chaos are anonymous elites hoarding growing piles of missing tax

money. The politicians continue to hide their wrong action such as minorities and

demonstrators.

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The second current issue is Najib risk losing support due to the rising cost of living. As the

subsidies have been reduced and GST has begun,the inflation occurs. The GST begin is to

compensate for the financial loopholes caused by falling oil and natural gas revenues. This

has been a key factor in prompting both urban and non-Malay voters to abandon the Umno

leadership’s past two elections. Najib is expected to use this chaotic situation of the

opposition and to hold elections this year after the corruption scandal of the National

Development Bank Malaysia Development Bank (1MDB).

Analysts expect that Najib will win, but he has little room for maneuver. In 2013, the

Umno-led Barisan Nasional (BN) coalition lost the popular vote but won most seats in

parliament – if its majority were further eroded this time, Najib could face an internal

leadership challenge. Rizalman Mokhtar, a grassroots leader with Umno, said he feared civil

servants that makeup around 15% of all voters could turn against the party if nothing is done

about the rising cost of living.(MT Malaysia Today, May 7, 2017)

Apart from that, the third issue is crime happening in Malaysia. A case of kidnapping

increase year by year. There were about 4000 Malaysian children missing in the year 2014

and 2015. Dewan Rakyat said that there was a total of 3937 children which aged between 6 to

18 years old have been reported missing from 2014 until Jan of 2016.(Star online,24 Mar

2016) Master said that Johor recorded 681 records of missing children, with 538 in Selangor

and 474 in Kedah.

Robbery also was the main crime in Malaysia. In May 2007, Reuters reported:

“Burglaries, shootouts in shopping malls and motorcycle-borne bag snatchers are just some

of the hazards” people face in Malaysia. “Kuala Lumpur resident Simonetta Roma, 35, was

returning from church one evening when two men on a passing motorbike grabbed at her

handbag. The next moment, she was being dragged along the street. "I saw these two guys

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passing by on a bike, and the next time I saw them I was on the road," said Roma, an Italian

who was seven months' pregnant at the time. "It all happened so fast." She escaped with just

cuts and bruises, but many are not so lucky: often bag-snatch victims are dragged head-first

into the pavement with such force they are either killed or left with injuries such as skull

fractures or broken bones.

The number of crimes in Malaysia rose by 14% to 225,836, compared with 198,017 in

2005, and the proportion of serious crimes rose by 26%. One of the fact that cause the rising

of crime is inflation which is rising cost of living. Because of the inflation in Malaysia get

higher and higher, people become suffer because their salary does not match with the living

expenses. Time over time, people will develop another wrong way to makes money such as

robbery, kidnapping, and others, and cause the percentage of crime get higher and higher.

4.0 IMPLICATIONS OF RISING LIVING COST IN MALAYSIA

Regarding to the report from Department of Statistics Malaysia, the Consumer Price Index

(CPI) has increased from 110.6 index points to 120.9 in year 2015 until 2018. This has

proven that the cost of living in Malaysia increased from year to year and it has burden the

Malaysians especially to the lower class and middle-class citizens. First of all, the main

implication of rising on living cost is the stress level of people will increase. For example, a

mas’s psychology will be affected when he doesn’t have enough money to pay back the debt

because most of his money was used to cover the living cost. He will feel pressured to deal

with this situation and he will be facing the stress symptoms such as insomnia, loss of

appetite, headaches and anxiety.

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On the other hand, the rising of living cost affected the safety issue. When the living

cost raised, the capabilities of the per capita income of the people will reduce. This causes

some of the people don’t have extra money to cover the living cost due to the increase on the

price of necessities and other services. Thus, some of the uneducated people will find some

illegal “part-time job” such as kidnapping, theft and robbery to get extra income. The

Malaysian Crime Watch Task Force (MyWatch) has mentioned that the serious crime

activities such as theft, robbery and kidnapping showed an increase from year to year due to

the rising of living cost in Malaysia.

Furthermore, the social aspect. It is undeniable that the rising of living cost will make

someone becomes more diligent in work. When an individual’s income was unable to cover

the monthly living cost, the individual is forced to find another source of income such as part-

time job to gain extra income so that he could cover the deficit. This will cause the individual

did not have leisure time to accompany with his family especially for those who are married

and eventually will affect the family institution. In addition, it will lead to social problems

such as divorce, abuse and social problems among teenagers in Malaysia. For those who

specialize in information technology (IT), they will run an online business in order to

increase revenue.

Moreover, income is not the only aspect that affects the living standards, while the

cost of living is another. There is a strong relationship which is inseparable between the cost

of living and the standard of living. With the presence of one, it will affect the presence of

another. Given a fixed level of income, the higher the cost of living, the lower the living

standard. For example, a man with RM 3,500 monthly salary and his monthly cost of living is

RM 2,500, he has about RM 1,000 of extra money to have some entertainment activities or

buys some luxury goods. When the cost of living increased, it means he could not have the

same lifestyle as before or in other words, his living standard has dropped.

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Last but not the least, rising of living cost decreased the investing activities. When the

cost of living raised, people have to pay more to obtain a good compare to before. Thus, they

faced some difficulties on getting extra money to have some investment or savings in the

bank. They have to be more cautious when planning to buy the necessities or luxury goods.

5.0 STEPS TO OVERCOME RISING COSTS OF LIVING

1. Change the Way of Life

Life needs to be changed due to circumstances at today that showed the cost of living higher.

All goods requirements nor the will become increasingly expensive. As such, each individual

or family institutions need to change their spending habits way than before. However, change

lifestyle requires self-discipline high to change the level of shopping in accordance with the

capacity and needs of life.

Example: If previously in the family that is often packed together on the outside, they

need to reduce this habit with cooking in mind. Cooking at home is more economical and

cost they need is lower than eating out. But home-cooked food is more guaranteed hygiene

than if we eat in the store. Usually, a family that loves to eat outside, especially during weeks

of salary. However, it is not wrong if you want to bring families eating out but they will have

to reduce the level of frequency.

2. Make a Part-Time Job

Part-time work can help increase the income of individuals on this day with much easier. In

addition, the ability of modern technology available nowadays allows us to do a job more

easily regardless of when and where. Modern technology available is very suitable for use by

those who want to carry out especially. This is so because this technology has a lot of

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networks that can be used only online only. In addition, the existing technology can also help

alleviate this, simplify and speed up the work process.

Example: Online part time job is a way to increase income to address the rising cost

of living as it can be done at home at no cost. Nowadays the internet more easy of getting the

knowledge at the fingertips will open the opportunity to learn online skills to earn income

such as creating a website, designing a web, programming, writing or language translation.

3. Set the Minimum Wage Increase of Workers

The main sources of household income are salaries and wages. The rate of salaries and wages

is determined in the labor market based on demand and supply. Salary and wages balance

rates will increase with increase capital or investments in the economy as well as technology

development. Increase in capital and technology development contributes to increased

productivity. This is the key to increasing salaries and wages.

4. Reduction in Tax Rates

Reducing tax rates by the government can help reduce the cost of living of the people. High

tax rates cause people to feel overloaded to cover their tax. They are also increasingly

desperate with debt, especially for those who have a lot of liability.

Example: According to sources, the Federal Government will be levied on the income tax rate

reduction population 2.3 million taxpayers especially for M40 or more, particularly

household income of RM9, 000 and below. The Prime Minister, Najib Razak, when

presenting the Budget in the House of Commons, 2018, says people's disposable income

between RM300 to RM1000, aims to bridge the income divide in Malaysia.

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6.0 CONCLUSION

The rising cost of living is the reality that must be endangered by people of a country

especially by middle and low income groups. Many of the people in Malaysia are average

make two jobs solely to accommodate the cost of living is said to burden the people on

nowadays. Increased cost of living that is not aligned with the increase in salary increases

caused almost the entire salary is allocated to buy the need daily merchandise, paying home

rent or loan housing and vehicles. The minimum wage set by Government of RM900.00 is

insufficient if only one of the family members working. The living costs cannot be fixed

unless we increase our income nominal household and or lowering prices of goods and

services. This requires the development of a short-term and long-term short-term strategy. We

can change these factors but by using different instruments. For that factor called the second

one, to be our subject of discussion, if we can limit the depreciation the Ringgit exchange rate

and simplifying the effects of GST, we will be able to contain excessive increase in prices of

goods and services. The Ringgit exchange rate is pollinated apart from the macroeconomic

fundamentals as well as by market confidence and sentiment is closely related to the power of

political and social institutions. There are many macroeconomic fundamentals determined by

factors beyond our control, confidence and market sentiments can we recover by taking

certain steps. Rationalization of subsidies and the abolition of controls price is as part of a

relaxation policy but as it is implemented with a weak regulatory framework and enforcement

in deep trading the state's welfare state becomes neglected. To deal with cancer that is

constantly contagious among the people of Malaysia today, all parties regardless of

individual, government, private sector or even the cooperative sector should play their

respective roles together to discuss and work together to address the problem of rising cost of
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living it is likely to increase the wealth gap among the communities where rich people

continue get rich and the poor will continue to be oppressed.

REFERENCES

1. InterNations connecting global mind, Cost of Living in Malaysia?

Retrieved from: https://www.internations.org/malaysia-expats/guide/cost-of-living-in-

malaysia-17126

2. (2014, January 6). Malaysians Need To Change Spending Habits To Face Rising Cost

Of Living, Bernama Online.

Retrieved from: https://www.akpk.org.my/content/574-malaysians-need-change-

spending-habits-face-rising-cost-living

3. TransferWise, Cost of living in Malaysia: Your guide

Retrieved from: https://transferwise.com/us/blog/cost-of-living-in-malaysia

4. TheStratergies, 1MDB and political corruption in Malaysia: a game of hide-and-seek

Retrieved from: https://www.aspistrategist.org.au/1mdb-political-corruption-malaysia-

game-hide-seek/%20

5. (2017, May 7). Najib risks losing support due to rising cost of living, FMT News.

Retrieved from: http://www.freemalaysiatoday.com/category/nation/2017/05/07/najib-

risks-losing-support-due-to-rising-cost-of-living/

6. POLICE AND CRIME IN MALAYSIA

Retrieved from: http://factsanddetails.com/southeast-asia/Malaysia/sub5_4d/entry-

3675.html

7. Trading Economics (2018). Malaysia Consumer Price Index (CPI).

Retrieved from: https://tradingeconomics.com/malaysia/consumer-price-index-cpi

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8. M.Jasni Mejad, (2017, April 3). Memahami, kesan kenaikan kos sara hidup,

UusanOnline

Retrieved from: http://www.utusan.com.my/rencana/utama/memahami-kesan-

kenaikan-kos-sara-hidup-1.465030#ixzz59KhpYEz2

9. Nur Syahidah Abdul Jalil. (2011, July 10) Menangani Kos Sara Hidup. Retrieved

from:http://ww1.utusan.com.my/utusan/info.asp?

y=2011&dt=1007&sec=Rencana&pg=re_02.html

10. (2017, January 6), Strategi Menangani Kos Sara Hidup.

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menangani-peningkatan-kos-sara-hidup/

11. (2017, October 27), Kadar Cukai Pendapatan Dikurangkan.

Retrieved from: https://www.hmetro.com.my/utama/2017/10/277525/kadar-cukai-

pendapatan-dikurangkan

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