KUALA LUMPUR: Malaysia's evolving economy has sparked intense discussions about who truly qualifies as "rich" in the country.
The 2025 Budget and the introduction of the T15 (top 15 per cent) classification has ignited a debate over the accuracy and relevance of the Bottom 40 (B40), Middle 40 (M40), and Top 20 (T20) income classifications.
Khazanah Research Institute (KRI) researchers Gregory Ho and Dr Suraya Ismail said these income group classifications could be misleading as they gave the impression that these categories "indicated the level of affluence on an absolute scale".
They argued that these groups failed to account for the substantial differences within each income category, which would better support discussions on wealth distribution and policy targets.
KRI said while the B40, M40, and T20 groupings focused on income levels, they often blurred the lines between wealth and income.
The researchers stressed that income classifications should not be equated with wealth, which also included assets, investments, properties and social capital.
In Malaysia's case, the differences within the groups complicate what it means to be "rich".
KRI said unlike poverty, which could be measured through clear and objective thresholds like the national poverty line, affluence was a far more complex and context-dependent concept.
In wealthier nations, being rich may involve owning luxury items or large financial portfolios.
However, in Malaysia — and similar lower-income nations — being "rich" may simply mean achieving a decent standard of living, such as owning a home and having financial security.
The KRI researchers have proposed a new approach to classifying Malaysia's population, one based on actual spending patterns, showing the structure of expenditure from basic needs to more complex goods and services.
They suggest that affluence should be viewed as a relative concept, shaped by national and global contexts.
KRI's framework redefines household classifications into three groups based on equivalised income: Bottom 20 per cent (B20), Middle 50 per cent (M50), and Top 30 per cent (T30).
Equivalised income refers to a method of adjusting household income to account for differences in household size and composition.
Households vary in size and composition — some have only one person, while others have multiple adults and children.
Simply comparing total household income between these households wouldn't provide a fair picture when measuring their standard of living.
For instance, a household earning RM4,000 per month with four members (including children) would face much greater financial pressure than a single-person household earning the same amount.
Equivalised income adjusts household income to account for these differences by assigning different weights to adults and children.
KRI said this allowed for better understanding and comparison of the financial wellbeing of households with varying sizes and dependencies, to ensure an "apples-to-apples" comparison of households' financial resources.
This reclassification challenges the long-held belief that the T20 group should be considered fully affluent.
A critical point raised by KRI is that while the M50 households play an essential role in Malaysia's economy, they remain financially vulnerable.
This group, despite being deemed "middle-class", often finds itself excluded from both government assistance and higher-end opportunities that would allow them to climb the socioeconomic ladder.
For policymakers, this presents a unique challenge.
As they attempt to exclude the "rich" from government benefits and target resources effectively, they must also consider whether the current classifications truly reflect Malaysia's socioeconomic reality.
KRI said the real task at hand was not simply identifying the "rich" but ensuring that interventions addressed the vulnerabilities and aspirations of all households, especially the M50 group.
As the economy continues to evolve, it becomes clear that the existing classification system needs rethinking.
The lines between the different income groups are not as clear-cut as they seem, and a more nuanced approach may be necessary to ensure that the needs of all households are adequately addressed.