The State of the Nation: Penjana: Restarting the economy and paving the way for reform

This article first appeared in The Edge Malaysia Weekly, on June 8, 2020 - June 14, 2020.

Keeping as many Malaysians employed as possible is still the main focus of Penjana. Photo by Patrick Goh/The Edge

Penjana provides a peek into plans to put the economy back on track, says Noor Azlan. Photo by Kenny Yap/The Edge

FMM is looking forward to the extension of the WSP to all employees regardless of wage levels

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AS Malaysia goes back to work and restarts the economy, the impact of two months of virtual shutdown of many industries and businesses not in the essential services category has taken a huge toll on the sustainability of the economy.

While most industries have been allowed to open, the impact had been felt two months prior, with thousands of workers laid off. It is estimated that Malaysia’s unemployment rate had increased to 5.5% in April, or 860,000 workers, from 3.9% in March.

Malaysia’s exports plunged 23.8% year on year in April to RM64.9 billion, the largest decline since September 2009 during the global financial crisis, according to the Department of Statistics Malaysia.

Keeping as many Malaysians employed as possible is still the main focus of the short-term Economic Recovery Plan, or Pelan Janasemula Ekonomi Negara (Penjana), which was unveiled by Prime Minister Tan Sri Muhyiddin Yassin last Friday afternoon.

While measures to keep people employed by subsidising wages and reskilling and upskilling workers sound similar to those announced under the Pakej Rangsangan Ekonomi Prihatin Rakyat (Prihatin), Penjana also provides a peek into plans to put the economy back on track, says Tan Sri Prof Noor Azlan Ghazali, executive director of the Economic Action Council (EAC), in a brief phone interview with The Edge.

“When the Prihatin programme was announced, we knew the measures might need to be expanded. We decided to go for three months first. If the situation warranted an extension, then we would extend it.

“But in this Penjana plan, there are measures that will incentivise us to step up spending, at both household and business levels. There is also what I term a small window of opportunity for foreign investors to take advantage of to relocate their operations to Malaysia,” he says.


Three main thrusts

Under the RM35 billion Penjana plan with the theme “Building the Economy Together”, the government has allocated a direct fiscal incentive of RM10 billion to recover lost ground.

The plan focuses on three main thrusts to support the economy in the new normal: empowering the people, propelling businesses and stimulating the economy. There are 40 key initiatives under these thrusts.

Under the “empowering the people” component, the government focuses on saving jobs and promoting employment, while ensuring the people have enough to live on. At the same time, the government also focuses on upskilling and reskilling the workforce.

This can be seen through initiatives such as the extension of the wage subsidy programme (WSP) for three months until September, involving an allocation of RM5.3 billion, and incentives to encourage the hiring of the unemployed, with an allocation of RM1.5 billion.

Meanwhile, under “propelling businesses”, the government focuses on enabling workers and businesses to sustain operations and gradually enhance productivity. The thrust also aims to regenerate the most affected business community — the small and medium enterprises (SMEs).

Initiatives such as a RM100 million SME Digitalisation Matching Grant, a RM500 million SME Technology Transformation Fund and a RM100 million Smart Automation Grant are provided to help and incentivise companies to digitalise operations and trade channels.

Bank Islam Malaysia Bhd’s chief economist Dr Afzanizam Abdul Rashid says the package is comprehensive, as it addresses the concern about the labour market, the transition to a new normal, especially in respect of digitalisation, as well as support for the mainstream industries.

“We particularly like measures on digitalisation and the gig economy, such as the matching grant of RM50 million that would encourage gig economy workers to contribute to Socso and EPF. This would mean their social safety net is being taken care of.

“Apart from that, the matching grant for SMEs to make the digital transformation via training and subsidies should encourage them to leverage on the digital platform,” says Afzanizam, when contacted by The Edge last Friday.

Besides allocation from the government, the banking industry will also provide an additional RM2 billion in funding for SMEs affected by the Covid-19 pandemic, at a concessional rate of 3.5%, to help them sustain their business.

The government is also allocating RM1 billion to the Penjana Tourism Financing facility to help SMEs in the tourism sector in their transformation programme so that they can remain viable and competitive in the new normal.

On top of that, RM400 million has been allocated to a funding programme for SMEs and micro-enterprises at a subsidised interest rate of 3.5%, provided through Bank Simpanan Nasional and Tekun Nasional.

A total of RM500 million in financial assistance is also provided by the government for bumiputra entrepreneurs, through Perbadanan Usahawan Nasional Bhd and Majlis Amanah Rakyat (Mara).

Under the third thrust of “stimulating the economy”, the government’s focus is on promoting Malaysia as a business destination, as well as providing targeted support for sectors that are more severely affected by the Covid-19 pandemic, such as tourism, arts, culture, entertainment and agriculture, to help them adapt and grow in the new normal.

The government, along with international investors and venture capital funds such as SK Group, Hanwha Asset Management, KB Investment Co Ltd, Provident Growth, 500 Startups and The Hive, will establish a matching investment fund worth a combined RM1.2 billion.

To attract foreign companies to relocate their businesses to Malaysia, the government has provided for a 0% tax rate for 10 years for new investments in the manufacturing sector with a capital of between RM300 million and RM500 million.

For investments exceeding RM500 million, a 0% tax rate is provided for up to 15 years. These measures are subject to the carrying out of the relocation within one year of the date of approval, with the investment amounts being spent within three years.

To stimulate the local economy by boosting consumption, the Penjana plan also offers tax incentives in the real estate and automotive industries.

For starters, the Home Ownership Campaign will be reintroduced. Under the HOC, stamp duty on the instruments of transfer and loan agreement for the purchase of residential homes priced between RM300,000 and RM2.5 million will be exempted.

At the same time, the real property gains tax for the disposal of residential property between June 1, 2020 and Dec 31, 2021 is also exempted. A 70% margin of financing limit for the purchase of third residential homes will be uplifted during the HOC period.

The measures taken by the government were applauded by the real estate industry, with the president of the Real Estate and Housing Developers Association of Malaysia (Rehda Malaysia) Datuk Soam Heng Choon saying they speak volumes about the government’s commitment to protect businesses and individuals of all socioeconomic strata.

“We are confident that these incentives will help alleviate the burden of buyers in homeownership and ultimately contribute to the growth of the economy,” he said in a statement last Friday.

Full sales tax exemption on the purchase of locally assembled cars and a 50% sales tax exemption for imported cars are also included in the third thrust, aimed at stimulating the automotive sector and providing financial relief to car buyers.

Automotive player UMW Toyota Motor Sdn Bhd welcomed the move. Its president Ravindran K said the incentive was good news for the automotive industry and the savings would be passed on to consumers in the form of lower prices.

“With the tax exemptions, we will be making the relevant adjustments to the retail prices of all our models and apply them by June 15,” he said in a press release sent to the media last Friday.


Are measures enough to keep businesses going?

While the automotive industry seemed happy with the sales tax exemptions, the hoteliers were more sceptical. In a statement released to the media last Friday, the Malaysian Association of Hotels (MAH) said the industry was in need of a specific stimulus plan and that it appreciated the announcement of new initiatives and welcomed the extension of WSP. At RM600 per month per eligible worker, however, it was insufficient for the industry to sustain, it said.

The association noted that, in a survey it carried out recently, 26% of employees in the hotel industry had to take unpaid leave, 20% had taken pay cuts and 6% had been laid off. It added that the numbers would have grown by now, with more hotels announcing closures.

The industry had long proposed a 50% wage subsidy for employees with a monthly pay of below RM4,000, and 30% for those earning between RM4,000 and RM8,000, MAH said in its statement. It also said the industry needed to know when the government would ease travel restrictions.

Meanwhile, the Federation of Malaysian Manufacturers (FMM) seemed happy with the Penjana package as well. Its president Tan Sri Soh Thian Lai said in a statement that the economic recovery package was comprehensive.

“In particular, FMM welcomes the initiatives to continue securing jobs and [to tackle] unemployment through several initiatives such as the hiring incentives for employment of youth and the unemployed … expansion and extension of the WSP, and programmes for reskilling and upskilling via ‘Place and Train’ and Apprenticeship, including the training allowance for the unemployed,” he said.

FMM said, however, that it was looking forward to the extension of the WSP to all employees regardless of wage levels, as well as the removal of the limit of 200 employees per company.

Wage subsidy is a measure that can keep both businesses and jobs intact. Many countries have introduced the programme as part of their economic stimulus packages.

As part of its economic stimulus package, the Singapore government had subsidised up to 75% of the salary of each citizen in employment in April, up to the first S$4,600 (RM14,100) of their monthly salary.

The New Zealand government had also implemented a wage subsidy programme, but it required companies to prove that their revenue had fallen at least 30% in a month, between January and June 9, 2020.

The Malaysian Employers Federation also joined the chorus asking for more funds to be allocated under the WSP. Its executive director Datuk Shamsuddin Bardan said the government should consider a longer period for the programme because the effects of Covid-19 could extend to next year. “The government should also consider allocating more funds for the wage subsidy,” Shamsuddin said in a statement.

Asked why the government did not provide wage subsidies for workers who earn monthly salaries of more than RM4,000, the EAC’s Noor Azlan says doing so would take away resources needed in other sectors and for other purposes.

“If possible, of course the government would want to subsidise salaries for all workers, regardless of the salary levels. However, this cannot be done because of the amount involved.

“At least the current WSP will ensure low- and middle-income workers are protected from being laid off or having their salaries cut. If someone who earns RM10,000 a month is asked to get a salary cut, yes it is still painful, but he or she will still be fine,” he says.


Seize the opportunity for reform

Noor Azlan says that, while Penjana looks at helping businesses sustain their operations and ensuring the well-being of the majority of workers in Malaysia, the country must seize the opportunity to reform its structural issues.

He points out that the country has been pushed to adopt many of the new normal processes, such as remote working and the digitalisation of business operations.

The pandemic has shown that many of the things that, in the past, were considered an impediment to automation and digitalisation can be overcome.

“We do have structural issues in terms of the quality of our workforce, reliance on foreign workers as well as our ability to attract more innovative activities to Malaysia. We need to seize this opportunity to reform.

“If we do not reform, we are making a big mistake. Covid-19 basically makes us realise that we can no longer delay the reform of some of the structural issues that we have seen for a very long time,” he says.


How will the government fund it?

Since the start of the year, the government has introduced economic packages worth a total of RM260 billion through Prihatin and Prihatin PKS. While not all of the funds for the packages come from the government’s coffers, the extra expenditures and tax incentives affect the government’s fiscal condition.

“Over the last two years, we have not been interpreting the budget deficits in the right way,” says Noor Azlan. “The status of fiscal deficits has to be looked at [in the light of] the situation of the economy, and whether we have a structured plan to improve the situation,” he says.

During the 2008/09 global financial crisis, Malaysia’s budget deficit plunged to 6.7% of gross domestic product (GDP), as the government introduced a stimulus package worth RM65 billion to pull the country out of recession.

Noor Azlan says while the fiscal deficit was considered deep, the government managed to improve the situation to only 3.2% of GDP by 2018. “What’s important is whether the deficits are manageable,” he says.

But what about the risk of a twin deficit, that is, fiscal and current account deficits? Last week, Malaysia reported its first trade deficit since 1997 when exports for April plunged 23.8% y-o-y.

“In normal situations, if you [have] a twin deficit, that will be a concern. You are trapped in a vicious situation. What we are facing now is not a normal situation. It is not only an economic slowdown, but it is an unprecedented situation,” he says.



Highlights of the Economic Recovery Plan

Empowering the people

•     Wage subsidy programme to be extended for a further three months with subsidy of RM600 per employee for all eligible employers

•     Enhancement of existing wage subsidy programme:

    - Employers receiving the wage subsidy are allowed to implement reduced work week and reduce pay cap by 30%

    - Employers in the tourism sector and businesses which are prohibited from operating during the Conditional Movement Control Order are allowed to receive wage subsidy for employees on unpaid leave, subject to employees receiving the subsidy directly

•     Incentives to encourage the hiring of unemployed:

    - RM600 per month for apprenticeships for school leavers and graduates for up to six months

    - RM800 per month for employment of unemployed aged 40 years and below for up to six months

    - RM1,000 per month for employment of unemployed aged 40 and above for up to six months

    - Training allowance of RM4,000 per individual to be extended to those retrenched but not covered under the Employment Insurance System (EIS)

•     RM2 billion dedicated to reskilling and upskilling programmes for youth and unemployed workers

•     One-to-one matching fund of RM250 million to co-fund place-and-train programmes in addition to other upskilling programmes with Human Resources Development Fund (HRDF)

•     Support Securities Industry Development Corporation (SIDC) programmes such as Capital Market Graduate Apprenticeship programme, Islamic Capital Market Graduate Training Scheme (ICM GTS) and training subsidy of up to RM3,500 over the next six months

•     Matching grant of up to RM50 million for gig economy platforms that contribute for their gig workers to Socso’s employment injury scheme and EPF’s i-Saraan

•     RM25 million for MDEC’s Global Online Workforce (GLOW) programme to train Malaysians to earn income from serving international clients while working online from home

•     Further tax deduction for employers implementing Flexible Work Arrangements (FWAs) or who undertake enhancement of their existing FWAs, effective July 1, 2020

•     Individual income tax exemption of up to RM5,000 to employees who receive a handphone, notebook and tablet from their employer, effective July 1, 2020

•     Special individual income tax relief of up to RM2,500 on the purchase of handphone, notebook and tablet, effective June 1, 2020

•     Coverage for workers involved in accidents while working at home under the Employment Injury Scheme by Socso

•     Increase in income tax relief for parents for childcare services expenses, from RM2,000 to RM3,000 for Year of Assessment (YA) 2020 and 2021

•     One-off grant of up to RM5,000 per childcare centre registered with the Ministry of Women, Family and Community Development (up to Dec 31, 2020) to comply with new healthcare SOPs

•     Introduce an unlimited monthly travel pass of RM30 for use on all rail services (MRT, LRT, monorail), BRT, RapidKL buses and MRT feeder buses

•     One-off financial assistance of RM300 to 190,000 registered OKUs, 150,000 single mothers with income levels below the poverty line and 2,000 Home Help Services volunteers

•     The government will double the existing allocation for the Peka B40 healthcare programme to a total of RM100 million


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