SPECIAL RELIEFS, YES – BUT EPF CUTS? ALL EYES ON MAHATHIR’S STIMULUS PACKAGE TO LIFT ECONOMY OUT OF COVID-19 SLUMP

EXEMPTION of the tourism tax and a reduction of Employees Provident Fund contributions are among the reliefs that should be included in the fiscal stimulus package aimed at cushioning the impact of the Covid-19 outbreak, said economists.

They told The Malaysian Insight that the travel industry and its related sectors, such as hospitality, aviation and retail, are the hardest hit by the Covid-19 outbreak. Also hit is the manufacturing sector.

A reduction in EPF contributions would raise the spending power of low- and middle-income households, including those employed in the affected industries, they said.

Special relief packages should be given to these sectors, Sunway Business School’s economics professor Dr Yeah Kim Leng told The Malaysian Insight.

Yeah said the proposed fiscal stimulus package is unlikely to be different from the RM7.3 billion stimulus package during the SARS outbreak in 2003.

The severe acute respiratory syndrome epidemic claimed 800 lives and Malaysia’s gross domestic product (GDP) slowed down from 6.9% in Q42002 to 4.6% in Q32003.

Covid-19, which started in Wuhan, China, late last year has claimed more lives than SARS as the death toll surges past 1,500 and infected more than 66,000.

“Given that the economic impact mirrors that of the 2003 SARS outbreak, the stimulus package will contain many similarities,” said Yeah, who is also the member of Bank Negara Malaysia’s monetary policy committee.

It’s important to look into the impact Covid-19 has on the low- and middle-income households, he said.

“Besides front-loading government spending and investment activities, the measures are anticipated to focus on employee retention along with employers’ relief on wage bills, targeted relief for small businesses in the affected industries and raising the spending power of low- and middle-income households.”

The Covid-19 outbreak is taking a toll on the tourism industry with flight cancellations and fewer tourist arrivals at KLIA, the country’s main gateway. – The Malaysian Insight pic by Nazir Sufari, February 15, 2020.
The Covid-19 outbreak is taking a toll on the tourism industry with flight cancellations and fewer tourist arrivals at KLIA, the country’s main gateway. – The Malaysian Insight pic by Nazir Sufari, February 15, 2020.

Relief fund

Socio-Economic Research Centre executive director Lee Heng Guie agreed with Yeah that the yet-to-be-unveiled stimulus package is likely to differ substantially from that of 2003.

The Covid-19 outbreak is likely to impact heavily on the tourism and services sector and its related industries, especially the small and medium enterprises (SME) in this segment, said Lee.

On that note, Putrajaya should consider measures, such as setting up a relief fund to help hospitality players in their efforts to up sanitisation and healthcare standards as well as exempting tourism tax to encourage inbound tourists.

It should also ensure that high healthcare and screening standards are in place to attract inbound tourists, he said.

In addition, Lee said, banks, too, could provide relief for debt services as well as reducing interest rates for borrowings under a guarantee fund by Bank Negara Malaysia.

Agreeing with Lee on relooking the tourism tax, head of tax and financial consulting at Asia Business Centre Chua Tia Guan said reducing property tax as well as the sales and service tax could help spur consumption.

Tourism players are also facing cash-flow problems because of the outbreak, hence the government could look into convincing banks to provide financial aid, such as extending loan repayment periods, said Chua.

“For self-employed tour guides, the government should provide living allowance to help them make up for the loss of income.”  

Besides tourism, Lee said the virus could also disrupt the supply chain in the manufacturing sector.

The electrical and electronics (E&E), and food and beverage (F&B) sectors are some of the industries affected.

Tourists at Istana Negara in Kuala Lumpur. Malaysia has imposed a travel ban on travellers from Chinese provinces worst hit by the Covid-19 outbreak. – EPA pic, February 15, 2020.
Tourists at Istana Negara in Kuala Lumpur. Malaysia has imposed a travel ban on travellers from Chinese provinces worst hit by the Covid-19 outbreak. – EPA pic, February 15, 2020.

Putrajaya also should consider speeding up the implementation of “turbo-charged” projects announced in Budget 2020, to lend the economy some support, he said.

Lee also suggested a voluntary reduction of EPF contributions as implemented in the 2008-2009 financial crisis.

The government then allowed employees to reduce their EPF contributions voluntarily from 11% to 8% for two years from January 1, 2009.

“Consumption is the only one sustaining the economy because other sectors and exports are not doing that good. I think maybe we can think about voluntary cut in the EPF and even expedite Malaysia work initiative announced in the Budget 2020.”

Lee also suggested that the government speed up the process of refunding the outstanding goods and services tax (GST) claims.

‘Don’t despair’

Senior Fellow at the Malaysian Institute of Economic Research (MIER) Dr Shankaran Nambiar said the coronavirus will have a “deeper cut” into the Malaysian economy due to the country’s significant dependence on the world’s second largest economy.

“The SARS virus should remind us of the kind of stimulus package that is necessary for the country.

“Incidentally, Dr Mahathir (Mohamad) was the prime minister in 2003 when the SARS outbreak occurred and he should be familiar with the stimulus package, amounting to RM7.3 billion that was offered to mitigate the consequences of the disease,” he said.

“China is crucial to Malaysia in terms of trade and investment. Tourist arrivals from China are also a big source of income to the tourist and hospitality industries.”

From January to September 2019, Malaysia received 2.41 million tourists from China.

Finance Minister Lim Guan Eng said yesterday that Dr Mahathir will unveil an economic stimulus package on February 27, aimed at mitigating the economic impact of the Covid-19 outbreak on Malaysia.

The economic stimulus package is neither a new budget nor part of Budget 2020 measures.

“Instead, assistance will be given to the affected sectors to allow the economy to emerge as whole as possible and benefit from the expected economic rebound post-Covid-19.

“While the market is facing serious challenges, we should not despair but instead persevere to allow our industry to survive, so that the country is ready to benefit from the economic rebound once the virus threat is over,” Lim said.

THE MALAYSIAN INSIGHT

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