A Review of the PEMULIH Package
The government has just released its latest incentives package called the PEMULIH, and is worth about RM150bn in terms of stimulus to the economy. This comes after the announcement of the last big stimulus package called PENJANA, and is geared mainly for the ongoing lockdown now. I will be reviewing the following main incentives to see whether they have the bang for the buck:
- Cash assistance for M40, B40 households, workers who lost their jobs, and disabled
- Electricity Bill Disocunt for Households and Businesses
- Salary subsidy for workers
- Withdrawal of EPF money
- Six-month moratoriums for borrowers, PTPTN, and JPA
Cash assistance for M40, B40 households, workers who lost their jobs, and disabled
Basically, the government is giving money directly to households, workers who lost their jobs, and the disabled.
- Hardcore poor households will receive a total of RM1,300 until the end of the year. Singles will receive RM500.
- B40 households will receive RM800 until the end of the year, while singles will receive only RM200.
- M40 households will receive RM250 until the end of the year, while singles will receive only RM100.
- People who lost their jobs will receive RM500.
- Disabled will get RM1,500 over 3 months.
The government estimates that it will be spending about RM4.6bn for the cash transfers for households, RM500m for people who lost their jobs, and RM30m for disabled people.
Firstly, is this enough for households? How much support does it actually give? The short answer is no. For the hardcore poor, RM1,300 is not enough to cover two months of expenses. According to data by DOSM, households who earned below RM1,000 per month spends about RM846 per month in 2019, so this translates to about RM1,700 for two months of expenses. It’s even worse for the B40 and the M40 group. the B40 group spends about RM2,473 a month where they will only be receiving RM800, which translates to only 32.3% of a month’s expense. The M40 group spends about RM4,542 per month where they are only receiving RM250, which translates to 5.5%. I understand that the program is actually targeted more for the hardcore poor but the impact is small as a whole considering the expenses that households incur.
For the unemployed, RM500 is just enough to cover food expenses for the household and not for others. Combined with the Employment Insurance System, you will be compensated the following percentage according to your previous income.
Generally, this is ok in terms of protection for workers who have lost their jobs during the pandemic. However, the gold standard is actually to have 80% for the first 100 days (3 months of employment normally) similar to some nordic countries in terms of social protection. I will give the government some slack on this as the EIS was only introduced in 2018 though the weak point still lies in it only covering formal workers in the system. Malaysia at this point is still highly informal in nature, where about 1.4 million workers are in the informal sector out of 15m of the labour force (DOSM).
Electricity discount for households and businesses.
There will be an extension of discount for businesses in certain economic sectors for another three months, and 10% discount from October to December. For households, a discount of 5–40% up to a maximum of 900 kwh for three months. The rate of discount will be divided into 40% for the first 200 kwh, 15% between 201 to 300 kwh, and 5% between 301kwh to 900kwh. The government estimates that households will save approximately RM346m for the three months it will be in effect.
Now, is this a big amount? Taking simple maths, households in total will save RM115.3m per month in electricity. There are about 8 million households as of last data in 2019, so that translates to about RM14.4 savings of electricity per household per month. I don't have any reliable data on how much households spend on electricity as DOSM includes electricity cost together with housing, water, gas and other fuels. The best I can do is take some estimates from other organisations and try to calculate the cost of electricity each month. From this study here in 2017, an average household was estimated to have used about 246 kwh per month. I then apply a growth rate of 2% every year (inflation as a proxy) to arrive at 273 kwh per month in 2021. This cost about RM68 per household. Applying the discount according to the 40% and 15%, the final electricity bill will come up to RM47, so that translates to about RM21 in discount. The RM14.4 discount sounds about right then for each family per month.
In the bigger context, however, RM14 to RM21 in savings per month won’t probably be big for a household. Of course, this needs to be contextualised by the fact that different income groups will treat this savings amount differently. The hardcore poor will benefit more from these savings however, it also means that they will use less electricity, and thus, the amount of savings will be less than RM14.
For businesses, I am not really sure how this will help much to be honest. I am not an expert but it is most probably the case that businesses are cutting down on electricity usage as technically no clients can come to their premises. I do know the savings will lead to reduced revenue for Tenaga Nasional Berhad, but it probably won’t be much since its 2020 revenue was RM43bn.
Salary subsidy for workers. RM4,000 limit will be removed and the program will be in place for 4 months.
The salary subsidy program will be reintroduced by the government, where there isn’t any limit now for the program. The government will subsidise about RM600 per employee limited to 500 employees per company for four months. 2 months in the second phase for all sectors, and 2 more months for sectors listed in the negative list.
My thoughts on it — great. I am glad this is being continued as the subsidy will support small businesses more. For context, about 98.5% of companies in Malaysia are SMEs, and this will be of great help to most employees. Looking at the unemployment rate, the latest data is only up to Apr 2021, so it doesn’t give a full picture of the lockdown impact yet. The unemployment rate was still declining to 4.6% but is expected to tick up in Jun and July 2021.
However, 2.5 million workers who will be covered by this wage subsidy program seems small to be honest. After all, the labour force currently is at 15 million. The last wage subsidy program also covered only about 2.7 million workers. Am I reading this correctly? The first 2 months does say it will cover all economic sectors which I am assuming all workers right? Is it the case that companies who don’t apply for it, won’t get it?
Withdrawal of EPF money. We can now withdraw some of our money from EPF.
The government has further allowed Malaysians to withdraw their money from EPF to tie them over during this pandemic. The program will be called i-Citra and it allows 12.6 million of EPF contributors to withdraw RM1,000 every month for five months.
I won’t exactly call this aid to Malaysians, rather it eases the cashflow problem. If you are currently facing some cash shortages now, this will indeed help but ultimately this is your own money. This is not aid from the government. I am ok with this move as this basically provides more avenues where Malaysians can get some of their cash from. At the same time, I don’t like it for the reason that these funds are for retirement purposes. Most EPF contributors already don’t have enough saved up for retirement.
In regards to the impact on EPF, I mean like not everyone will withdraw their EPF. The government estimated that RM30bn will be channeled to the economy based on this, which assumes close to half of the EPF members will withdraw the RM5,000 (RM63bn is the amount if all the members withdrew RM5,000). Latest data from EPF indicates that EPF has hit RM1.02 trillion in fund size and that EPF has and is still releasing RM130bn in funds to its members during the pandemic. RM90bn comes from i-Sinar Account 1 withdrawals, while RM20bn comes from i-Lestari Account 2 Withdrawals. It makes sense that people want to withdraw these funds as it is getting hard to support themselves but it does leave everyone vulnerable to a retirement crisis.
Hence, this is what I am saying, there is little government support for a tax-funded pension benefit system. The current situation already indicates that most Malaysians don’t have enough for retirement and the solution is not to increase the contribution rates but rather to expand the tax base for Malaysia and fund a more comprehensive social protection for retirement.
Six month moratorium for borrowers, PTPTN and JPA. Repayments deferred.
Here we go again. The hotly debated moratorium on borrowers. It’s the same amount of time of six months, and they clarified that you still have to pay what you didn’t pay for that six months. My opinion is this is great for the short term, but might mess with your cashflow management in the long term.
Consider this, you are tight on cash now since you have been let go by your employer or have your wage reduced. You still need to pay for household expenses and you probably have to dig deep into your savings. The government says that you don’t have to pay for your loan repayments now, so you breathe a sigh of relief for 6 months. This leaves you room to find another job in that 6 months and potentially get you back on track. However, once that 6 months is up, you would probably have to pay higher than usual repayments every month. There could be a squeeze again then during that time as you struggle to keep up with your debt repayments. Hence, it is always wise to remember that you are just kicking the ball further down the road. You still have to pay them.
The ones on PTPTN and JPA. Well, I don't know how I feel about this. Firstly, you should always repay your loans. Secondly, the money comes from taxpayers so the more the reason to repay them back. However, they are education loans so it is considered an investment into our youths and labour force. PTPTN is for 3 months and KPA is for 6 months. Why are they different? Just have them both at 6 months. I know PTPTN has been losing money but technically I am ok with that since it is mainly for investment into the education of the labour force. Though of course, I am not condoning reckless borrowing behaviour by PTPTN. However, PTPTN is much bigger than JPA so it makes more sense to also give 6 months for it.