How you and I finance most of the RM20 bil stimulus

By P Gunasegaram

EVER wondered where the government got the RM20 bil for the economic stimulus package to “bolster confidence, stimulate growth and protect jobs” when the former finance minister repeatedly said the government has no money?

Recall the government went into limbo on Feb 24 when then prime minister Tun Dr Mahathir Mohamad resigned and was promptly appointed interim prime minister as a cloud of uncertainty worse than the coronavirus the package was supposed to mitigate descended and ominously enveloped Malaysia.

As Lim Guan Eng, the architect of the stimulus was no longer finance minister, it was left to Mahathir to announce it three days later on Feb 27. And Mahathir being Mahathir, without finance minister or cabinet, but with the chief secretary by his side, bravely strode up to make the announcement.

First, where did the money come from? 

As the table indicates, the largest source of funds is under the category of “others”. Read the economic stimulus package booklet closely and it says (below the table above on page 17) other sources amounting to RM13 bil relate mainly to the reduction in the EPF contribution from 11% to 7% of salary.

You have to look at Measure 19 on page 10 of the booklet to glean the information that this reduction in EPF potentially increases cash in the hands of households by RM10 bil.

Ahh, so! We can now see what’s happening. Spend the money from what could be our potential retirement savings to stimulate the economy and save businesses and jobs. In other words, half of the stimulus package comes from hard-earned money from wage-earners which should be saved but which is now being spent to save the economy instead.

In fact, you and I and similar wage earners are pumping in money into the economy. I don’t know about you, but I think that’s the wrong thing to do, especially when things are skewed such that most of us are likely to spend that 4% of our income.

How is that? Because if you want to continue to contribute 11% of your income to EPF and save, you have to ask your employer for a form which you have to fill up stating that you want to keep your contribution at 11%.

Not only does the government use your potential savings to boost economic growth, they do it sneakily such that most of us don’t even know that they are actually doing this and many may not even know that their pay packet has suddenly been increased by 4%. What a sneaky thing to do to wage earners!

We are not going to go down the list of measures the government proposes – there are 32 in all but let’s look at them broadly. There is a restructuring of loans for businesses in the tourism and related sectors, which will presumably amount to about RM3 bil to take the “others” category up to RM13 bil when you add it to the EPF source of RM10 bil. 

Loan restructurings and Bank Negara financing come from the banking system and don’t involve an injection of funds from the government directly. That means the direct contribution by the government is the RM2 bil for small-scale projects and the RM1.5 bil in tax exemptions to make a total of RM3.5 bil.

How the loan refinancing is going to be done is uncertain – Bank Negara has been asked to ensure that the financial institutions help them which implies some amount of compulsion over what should be a business decision. To be sure not all tourism and related businesses deserve help but give cheap money and extended payment and who can resist?

Effectively, even some of these monies are in the form of private deposits in the banking sector which the government is trying to mobilise and which comes partly from savings made by you and me in the banks. 

Likewise, there are all sorts of other benefits given, including loan funds of RM3.5 bil, which the booklet says comes from Bank Negara, and other tax breaks and incentives, including concessional funding. How the government proposes to ensure these are not abused is a difficult question to answer. 

There is a rather puzzling 15% electricity “discount” for businesses affected such as hotel operators, travel agencies, local airline offices, shopping malls, convention centres and theme parks. Malaysia Airport Holdings Bhd (MAHB) will also provide rebates on rental for premises at the airport as well as landing and parking charges.

As we all know, both Tenaga Nasional Bhd and MAHB are public listed companies. Is it fair that they are roped in to do such national duty? In fact MAHB shares fell the day after the stimulus package was announced.

Overall, the stimulus package does not seem to be well thought out. Savings of wage earners are being used to push the economy while other measures, which include travel vouchers (RM500 mil allocated) for up to RM100 per person to encourage travel, are extremely difficult to implement and open to abuse.

The easiest stimulus package goes like this: dig into government coffers and give the money to those who are most likely to spend all of it – the poor. 

So a direct grant of RM20 bil from the government to the poorest in society is the best and most equitable way of boosting economic growth. We already have had plenty of experience doing this and a ready-made list.

After all, it is the poor who need the most help in a downturn, not business owners. 

Here’s one for the new government, so far without a Cabinet. Do note the above but remember if you restore confidence rapidly you can actually dispense with a stimulus package as people start spending and investing again. 

Right now, I dare say, the coronavirus causes fewer problems to the economy than the real worries all Malaysians have of the future of our country. – March 5, 2020

P Gunasegaram says confidence is inversely proportional to uncertainty – the less the uncertainty, the greater the confidence 


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