‘Cut in EPF can boost economy’

PETALING JAYA: The move to cut the Employees Provident Fund (EPF) contribution rate as part of the measures in the 2020 Economic Stimulus Package will help ramp up domestic spending in the country, say economists.

But they said while workers from middle to lower income groups would enjoy the additional money at their disposal, higher wage earners were likely to opt out of the scheme.

Economist Prof Dr Yeah Kim Leng said private consumption, which accounts for more than half of the country’s Gross Domestic Product (GDP), could be boosted by initiatives to put more cash in the people’s pockets.

“The reduction in EPF contribution rate by 4% is a higher quantum than expected.

“At the aggregate level, private consumption which accounts for nearly 60% of GDP, is supported by the increase in disposable income in the hands of the consumers, ” he said yesterday.

On Thursday, interim Prime Minister Tun Dr Mahathir Mohamad unveiled the stimulus package, which included cutting EPF contribution rate from 11% to 7%, starting April 1 until the end of the year.

Prof Yeah said it was a good decision to allow EPF contributors an option to choose, akin to an “early withdrawal” for spending.

“This is helpful to those with immediate spending needs as they would not need to borrow, ” he said.

Socio-economic Research Centre executive director Lee Heng Guie said the utilisation rate of such a policy would be dependent on a person’s financial judgment.

“It is true that people are concerned about their future retirement but this is just a short-term measure, ” he said.

HR consultant Imran Kunalan said it was nothing new as the government had resorted to reducing the EPF contribution rate to encourage spending by people.

“In the past, those who earned higher income opted to maintain the contribution rate because for them, they don’t want to touch their savings.

“But for the lower income group, especially those in the B40, this will be something for them to look forward to.

“At least they will have additional cash to spend.

“This will potentially unlock up to RM10bil worth of private consumption.

“Malaysian workers have the option to opt out, ” he said.

Currently, employees contribute 11% of their salary to the fund while employers must put in a minimum of 12% for those earning more than RM5,000 and 13% for salaries lower than that.

The government had previously reduced the contribution rate in 2001,2003,2009 and 2016.

In 2016, for example, the government lowered the rate to 8% from March of that year until December 2017.