Prime Minister Muhyiddin Yassin made his third announcement adding on to the Prihatin Rakyat Economic Stimulus Package on April 6th, 2020, which was almost exclusively for the small-medium enterprises (SMEs). The new additions see the additional injection of RM10 billion (loans don't really count as injections, but the funds set aside for micro credit loans is another RM700 million).
The summary of the announcements are as follow:
1. Budget for wage subsidy programme increased from RM5.9 billion to RM13.8 billion. Programme is for a 3-month duration with the condition that employers must retain staff for at least 6 months. Applicable to employees earning below RM4,000.
Businesses with no more than 200 employees : RM600 subsidy / employee
Businesses between 76 – 200 employees : RM800 subsidy / employee
Up to 75 employees : RM1,200 subsidy / employee
2. Grants amounting to RM2.1 billion for all micro SMEs that qualify. RM3,000 per micro SME. Condition: Needs to be registered with Inland Revenue Board.
3. Micro Credit Scheme under BSN (RM500 million) - interest reduced from 2% to zero. Same interest reduction arrangement extended to TEKUN (RM200 million) up to a maximum of RM10,000. Applicants can only choose one of the two schemes.
4. Exemption of rent / discounts given to tenants of premises by companies owned by government (ie. MARA, Petronas, PNB, PLUS, UDA) and participating state-own enterprises.
5. Landlords giving at least 30% discounts for rent for the duration of MCO and 3 months after. Landlords giving discounts to SMEs will be given additional tax deductions matching the amount of rental reduction for April 2020 to June 2020.
6. Allow reduction of foreign workers levies up to 25% for companies whose workers' permits expire between 1st Apr to 1st Dec 2020 (not applicable to house maids)
7. Automatic 30-day moratorium from the last day of the MCO for businesses to sort out their returns for submissions with SSM. Deadline for the submission of financial returns extended 3 months from the last day of MCO, particularly for companies whose financial year ends on 30 September to 31 December [2019].
8. Government clarified that employers and employees can indeed negotiate pay cuts and pay-without-leave.
If I can sum up this stimulus, it would be that it helps a little bit, but still misses many SMEs. In some parts, it's merely an increase in thresholds of what is already there.
Wage subsidy programme - still only for businesses making a 50% loss since 1st January 2020?
There is still the question of why only businesses making a loss of 50% since 1st January 2020 qualify for the wage subsidy programme. This programme would have been useful to many SMEs, but it is unclear whether the loss requirement that came with the second stimulus still applies, or if it has been done away with. If it has been removed, then this alone would be a great move forward.
Update (8/4/2020): It seems the government did indeed rescind this requirement.
There is also the question on why only employees earning RM4,000 are considered - likely a cost reduction exercise. A person earning above RM4,000 is still cost to the businesses. If everyone in the small business earns above RM4,000 and hasn't been able to earn at all due to the MCO while still incurring expenses, salaries being but one, shouldn't they be considered as well?
Wage subsidy programmes elsewhere
Canada's answer to this is to subsidise 10% of employee wage or up to C$1,375 for all eligible employees and C$25,000 per employer to prevent lay-offs. Singapore's Job Support Scheme sees the government co-funding at least 25% and up to 75% of the first S$4,600 of gross monthly salaries (including employee CPF contribution, but excludes employers' contribution) for each employee for 9 months, depending on sector. Despite the pandemic, Singapore still made enhancements to its existing Wage Credit Scheme, where its government co-funds increases to employee monthly wage of up to S$5,000 (that's the government encouraging businesses to pay their workers more by chipping in 15% (for 2020) to 20% (for 2019) of salaries. Such is the resolve of these governments not only to keep businesses alive and weather the COVID-19 storm, but also to ensure employees are taken care of.
No doubt this will be costly, but they are investing for the future. It's a matter of giving capacity to businesses to allow them in turn to take care of their employees. Otherwise, some will have little choice but to take drastic cost-cutting measures which will shrink their business capacity to perform after the MCO, or worse, result in laying-off of workers. Overall, once this crisis is over, Malaysia could be on poor footing in terms of its economic recovery efforts.
It is also a very odd thing that employees of smaller business are getting more than bigger companies. Could the government be assuming that bigger companies automatically have the scale to earn more than smaller ones? Should this be so, then this logic is extremely flawed as it is not necessarily the case. Again, this was more likely a cost limitation exercise on part of the government, which again, is a flawed strategy if the aim is to keep businesses alive. Loss in revenue does't prey on how big a business is in terms of its employee size.
Solution: The sensible move is for government to implement a wage subsidy of at least 30% or up to RM1,200, depending on sector, for the first RM4,000 of wages. The subsidy should include the employees' EPF portion, but not the employers' portion. For sectors most impacted by COVID-19, a higher wage subsidy should be considered (note: Singapore's Aviation and Tourism sectors are receiving a 75% wage subsidy for the first S$4,000). This ruling should be applied to all businesses affected from March onward, not since January 2020. There should be no ceiling on number of employees.
If businesses opt for this subsidy programme, there won't be a need for grants (item 2), neither will they need loans (item 3) though zero interest is definitely a good gesture - but the wasted time in applying for it could be a constraint to some SMEs due to time-sensitivity and the lack of know-how.
Extension of rent (item 4) waivers and discounts have already been announced in the previous stimulus, but now also applies to GLCs and the some of the ruling government's state-owned enterprises.
Private rentals and levee discounts help
Giving additional tax deductions to landlords who lower rent (item 5) is a good move as many SMEs rent. Such discounts/tax deductions would help stabilise cashflows for both tenant and landlord. Reduction of levies (item 6) are also a step in the right direction in reducing the cost for the industries relying on foreign workers and the discount of 25% is appropriate. The moratoriums by SSM (item 7) is also a good gesture, although it would in the best interest for businesses under SSM to get their returns in order and submitted ASAP as time can make us forget crucial details.
It was also a good thing that the government clarified conditions for reducing employee's salaries or asking employees to go on unpaid leave - it is a matter between the employer and employee. Yes, employees have the right to say 'no'. But as long as there is an agreement, this is fine - and is current practice. Previous assumptions that employers must under all circumstance and without exception pay their staff normal salaries were unfounded.
Many businesses will shut down, high unemployment
As it is, this additions to the stimulus would help, slightly. Many SMEs won't even feel a breeze of it if conditions for 50% loss since January still applies. With it, Malaysia is still very much in danger in seeing many businesses pack up and many people losing their jobs.
Yet, the answer is right in front of us. Or rather, towards our South (or South West, depending on where you live in Malaysia).
To gauge more effective policy, use focus groups
The Economic Action Council (EAC) should employ focus groups to gain feedback on these new ideas. Consulting industry leaders provides a very one-sided view of the overall situation, as they may not necessarily face the same problem on the ground as their counterparts/competitors* (*word deliberately used. Go figure the implications). The government should organise focus group discussions, perhaps 50-100 representatives per sector (ie. 50-100 representatives for tourism) and have these draft proposals like the stimulus circulated to them first for feedback. This focus group can be convened by government agencies with expectations to respond to the draft within 24 hours, or less, due to the urgency of the matter. This arrangement is likely to be already happening with industry leaders via a representative body, but spreading the sample for feedback would still be best to gauge the accuracy and impact of intended policies.
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