By Wong Chen
In this article, I would like to address two important topics related to Budget 2021; the budget votes and the EPF Covid-19 withdrawals.
All federal budgets need to be tabled, debated in Parliament and then voted upon by MPs. Other than the obvious financial implications of the budget, it is also politically important, as the failure to pass the budget will mean the prime minister and his cabinet has to resign.
As for the budget voting process, there are two crucial votes. The first vote happens at the second reading, at the close of the policy stage debate. The passing of that vote will then enable the next stage of debate, called the committee stage to proceed. The committee stage will have votes for each ministry, but the defeat of any of the ministry may not be fatal as provisions for amendments can be invoked to rectify the situation. That being the case, the final and ultimate budget vote actually happens, in the third reading.
As for the voting process, votes are either done by voice counting (where MPs shout either “setuju” or “tidak”) or done by division counting (called “belah bahagi”). The division counting can only be triggered by 15 MPs standing up and asking for the same. In practice, a vast majority of legislative votes are done by voice counting.
For the current budget debate, the second reading policy stage vote was done by voice counting on 26th November, as less than 15 MPs stood up to request for divisional counting. So instead, a voice vote was conducted and the Opposition lost. This loss thus enabled the last minute concessions on loan moratorium, EPF withdrawals, and financial aid for front-liners, fishermen and farmers made by the minister of finance, to advance to the committee stage for MPs to scrutinise and debate further. This advancement does not mean that the budget is passed but it unfortunately created a lot of confusion and negative public reaction. It is important to stress that there is still the final and ultimate vote which will take place in the third reading. That final and decisive vote is slated for the 17th of December 2020.
Now I would like to turn my attention to the special EPF Covid-19 withdrawal issue. Why is this important? Well simply because EPF money belongs to the depositors, it belongs to you and I. It does not belong to the government, but is managed on trust by the government to protect our old age pensions. That being the case, I am compelled to speak up to any negative change of EPF policy and that is what I did, in the policy stage debate with the finance minister.
During the debate, I appealed to him to change his mind as his proposal to allow 8 million depositors to withdraw RM70 billion from EPF will put EPF in a very difficult financial situation. Let me now do the maths, in support of my position.
In 2019 (pre‐Covid-19) EPF contributors deposited RM76 billion into EPF. For 2019, EPF contributors (mostly retirees) also withdrew RM45 billion. Note that these are 2019, pre Covid-19 numbers. For 2021, I am projecting that EPF depositors will contribute less than the year 2019, due to the fact that unemployment is likely to remain relatively high and pay cuts are expected to continue into 2021. I thus estimate for 2021, the EPF contributions to fall from RM76 billion in 2019 to RM70 billion in 2021.
As for contributor withdrawals for 2021, again due to Covid-19, there will be more pressure than the norm withdrawals, which is why I estimate the 2021 withdrawals to be higher than RM45 billion in 2019, at RM50 billion.
Therefore for 2021, my projection is that the total net inflow for EPF will be a smaller RM20 billion. If the minister carries out his proposal next year to allow 8 million depositors to withdraw RM70 billion for Covid-19, the EPF for 2021, will need to raise additional funds of RM50 billion. In addition to the above burden, the federal deficit is expected to be RM85 billion in 2021. To raise money for the said deficit, the government will have to issue RM85 billion of sukuks and bonds. Normally, EPF will buy 25% of all sukuks and bonds issued by the federal government, therefore EPF will need to find an additional RM21 billion to do so next year.
The financial burden for EPF next year will be RM50 billion for the special Covid-19 withdrawals and RM21 billion to buy sukuks and bonds, totalling a very challenging RM71 billion. Where is EPF going to find an additional RM71 billion next year? What assets and shares are they going to have to sell? Is it wise to sell assets and blue chip shares at a depressed market? I urged the minister to change his plans regarding the special EPF Covid-19 withdrawals and to be more targeted and reasonable. His intended actions will have negative market implications and will put unnecessary strain on the sustainability of EPF to pay the annual 6% dividend.
I fully empathise with the challenges faced by the poor and those that have lost their jobs and therefore to allow the most desperate 2 million depositors from the B40 and M40, to withdraw a portion of their pensions is acceptable, as a policy. But to allow a floodgate of withdrawals for the rich and poor is very irresponsible. I sincerely hope that the minister will reconsider his position and scale back the EPF withdrawals and not put unnecessary financial strain on EPF. He must do this immediately before the EPF withdrawals start on 1st January 2021.
