PETALING JAYA: The extra money employees receive with the three percentage point reduction to their Employees Provident Fund (EPF) contribution is a welcome move, say economists.
Chief economist at Alliance Bank Manokaran Mottain said the main objective of the revised Budget 2016 was to spur growth.
“Consumer consumption represents 53% of gross domestic product, so consumer spending is a big generator for GDP growth,” said Manokaran.
The Government has announced that the move to bring down the rate of employees’ EPF contribution from 11% to 8% would translate into RM8bil in consumer spending.
If an employee earns RM5,000 a month, they will have RM150 more to spend every month, or an additional RM1,800 annually.
Manokaran said the low and middle-income groups that represented about 60% of the working population were most likely to spend this extra money.
However, the other 40% of the working population would keep the additional cash as savings.
“EPF savings are meant for retirement, so it is good to invest if you can afford to,” advised Manokaran.
“On the other hand, some people who are facing problems with the rising cost of living and can’t afford to make payments for their instalments, the extra money would be handy for them.”
He said the amendments to Budget 2016 were preemptive policies to prevent the economy from deteriorating further.
“Times are going to be tough. Commodity is down, crude oil is down, financial markets are down. We need these kinds of policies to avoid any further slowdown,” said Manokaran.
Independent economist Lee Heng Guie said the move would bolster consumer sentiment.
“It will particularly help the lower income groups as they work on a tighter budget. This will put money back into their pockets,” he said.
He said the move was timely as the current consumer sentiment was still weak, with people worrying about finances and job security.
“This move will see money put back into flow,” added Lee.
Malaysian Rating Corporation chief economist Nor Zahidi Alias called the move a worthwhile effort as consumer sentiment was on a declining trend over the last few quarters.
“Actual growth in consumer spending also dropped below 5% in the third quarter of 2015, something that has not happened for quite some time.
“This calls for greater efforts to shore up consumers’ appetite for spending to support the economy,” he said.