• A critique of Dr. Bruce Gale’s “Economic Reform in Malaysia: The Contribution of Najibnomics”

    Media Statement by Dr. Ong Kian Ming, Member of Parliament for Serdang, on the 6th of September 2017

    A critique of Dr. Bruce Gale’s “Economic Reform in Malaysia: The Contribution of Najibnomics”

    I must admit that I was somewhat taken aback to read that Dr. Bruce Gale had written a book on Najibnomics that was, on the whole, praiseworthy of the economic reforms which took place under the Najib administration. The first time I came across Dr. Gale’s name was via his first book “Politics and Public Enterprise in Malaysia (1981)” which I believe is based on his PhD thesis which he wrote as a student at Universiti Kebangsaan Malaysia (UKM). Since then, Dr. Gale has written a number of other books and is, as far as I know, based out of Singapore doing political risk consulting. I did not want to respond to the arguments made in the book until I had read the entire book, which I managed to do over the holiday weekend. It is not a long book, only 99 pages, much of it comprising of budget highlights, various initiatives under the Economic Transformation Program (ETP) and key economic policy initiatives under the Najib administration, much of which I was already familiar with. Suffice to say, after finishing the book in approximately 2 hours, I found major gaps in Dr. Gale’s analysis of Najibnomics which I will now highlight.

    Dr. Gale defines Najibnomics as “the practice of increasing the resilience of an economy by pressing ahead with macroeconomic and administrative reforms regardless of their short-term political cost”. He argues that Najib made the difficult decisions to introduce the GST, withdraw subsidies and introduce structural reforms even though he knew they were going to be politically unpopular so that the economy could be on a sounder footing in the longer term. This argument is not new. These are the basic tenets of the “Washington Consensus” model espoused by the International Monetary Fund (IMF) and the World Bank which was shoved down the throats of developing countries during times of economic crises in return for financial aid from these international lending institutions. The problem with this traditional argument in support of such ‘austerity’ policies is that firstly, they don’t examine the damage done to individuals and families, especially those with lower incomes, and secondly, they don’t analyse the devil in the details.

    (i) Withdrawal of subsidies but where are the mitigation measures now?

    In Najibnomics, Dr. Gale focused on the withdrawal of subsidies for three items – sugar, petroleum and the electricity tariff. He ignored the impact of the withdrawal of subsidies on other necessities such as flour and cooking oil as well as toll prices, just to name a few. And he failed to discuss the ‘mitigation’ measures that were supposed to cushion the blow of taking away these subsidies.

    I still recall way back in 2010, when Dato’ Idris Jala, who was then the Minister in charge of PEMANDU, made the case that the impact of the subsidies would be cushioned by targeted ‘mitigation’ measures. For example, in place of the petrol subsidy, each person with a motorcycle that is less than 250 CC would receive an annual subsidy of RM54 while each person with a small car (less than 1000 CC) would receive an annual subsidy of RM126. To cushion the impact of the increase in toll prices, he promised a 20% rebate for heavy toll road users (more than 80 transactions per month). To cushion the impact of the price rise in sugar, flour and cooking oil, poor families would receive a cash rebate of RM20 in the first year and an unspecified discount through the MyKasih card in the 2nd year. These mitigation measures disappeared in 2011 (or were never implemented) leaving consumers, especially the more vulnerable groups, financially worse off. Hospital treatment charges and university school fees were also raised as part of this subsidy ‘rationalisation’ plan.

    Source: Powerpoint Presentation by Dato’ Idris Jala on the 27th of May, 2010 at the Subsidy Rationalization Open Day[1]

    (ii) The significant increase in off-budget expenditure items

    Dr. Gale praised Najibnomics for improving Malaysia’s overall fiscal position i.e. reduction of the budget deficit and of government debt as a % of GDP. But he fails to even have a single mention of the rise in off-budget spending as well as the increase in contingent liabilities under the Najib administration.

    Contingent liabilities or debt by government owned and government controlled entities which are fully guaranteed by the federal government increased from RM96.9 billion in 2010 to RM187 billion in 2016, an increase of RM90.1 billion or 93%. In comparison, the total budget expenditure increased by only 31.5% during the same time period, from RM203 billion in 2010 to RM267 billion in 2016, representing an increase of RM64 billion. If Dr. Gale believes that the GST was necessary to improve Malaysia’s public finances in the long run, shouldn’t he have at least discussed the long-term impact of the rise in these contingent liabilities? Especially since some of the big ticket contingent liabilities such as the expenditure for the LRT extension and the upcoming LRT Line 3, the MRT Line 1, Line 2 and possibly Line 3, the East Coast Rail Link (ECRL) and the High-Speed Rail (HSR), will have to be eventually financed directly by the federal government?

    This does not even include the financial gymnastics used by the federal government to artificially maintain the government debt to GDP ratio below the 55% level. For example, the Ministry of Finance shifted approximately RM27.9 billion in development expenditure from the budget to a 99% MOF Inc owned private company called Pembinaan PFI Sdn Bhd from 2010 to 2013.[2] This reduced the budget expenditure in the short run but would increase the long-term interest payments incurred by the government over the next 20 years.

    This does not include the RM10 billion spent by Pembinaan BLT Sdn Bhd, another 100% MOF owned private company, to build new police quarters and facilities which the government will have pay a yearly rental to.[3]

    This does not take into account the RM22 billion of housing loan debt incurred by civil servants which was shifted to the Public Sector Home Financing Board, another 100% MOF owned entity.[4]

    Given Dr. Gale’s familiarity with the public sector in Malaysia, it is utterly surprising that his analysis would exclude such big-ticket items that would inevitably affect the Malaysian government’s financial position moving forward, since a significant amount of the interest on this off-budget debt will have to be serviced by the federal government either directly or indirectly.

    (iii) The rapid rise in the budget allocation of the Prime Minister’s office

    Dr. Gale was quick to point out the increasing share of the budget being taken up by petrol subsidies and argued that this misallocation of resources had to be curtailed i.e. the petrol subsidy needed to be removed. But he totally ignored the fact that the allocation to the Prime Minister’s Department grew significantly under Najib’s watch. The total budget allocation (operating and development expenditure) allocated to the Prime Minister’s Department grew from RM12.2 billion in 2010 to RM 20.3 billion in 2016, an increase of 66.5%. Recall that during this time period, the overall budget only increased by 31.5%. In other words, the allocation to the Prime Minister’s Department grew more than twice as fast as the total budget expenditure! Why wasn’t this potential misallocation of resources investigated by Dr. Gale despite the spotlight which opposition politicians have shone on this expenditure year after year?

    (iv) How widespread was Najib’s efforts at economic liberalisation and increasing competitiveness?

    Dr. Gale is quick to point to policies such as Najib’s decision to scrap a 30% requirement for ethnic Malay ownership of investments in 27 areas as examples of economic liberalisation under the Najib administration that were potentially politically unpopular but would lead to long term positive outcomes and greater competitiveness in the Malaysian economy. But he failed to highlight the areas which Najib did not liberalize and failed to make more transparent.

    He left the structure of Public Private Partnerships (PPP) alone which allowed unfair concession agreements to continue and for new ones to be signed. He failed to renegotiate the lopsided toll concession agreements which partly contributed to additional government expenditure via compensation to the toll concessionaires in lieu of toll price increases and later, to toll price increases when the government eventually withdrew this subsidy. He allowed new toll concession contracts to be directly negotiated and signed without any public disclosure of the terms and conditions. The MRT Line 1 and Line 2 projects were awarded directly to the Gamuda-MMC consortium without an open tender and the most expensive infrastructure project in Malaysia to date, the RM55 billion East Coast Rail Line (ECRL), was awarded to a Chinese company without a public tender.

    (v) Over reliance on the annual reports produced by PEMANDU

    Dr. Gale quoted statistics and examples liberally and copiously from the Economic Transformation Program (ETP) and the Government Transformation Program (GTP) annual reports as evidence of Najib’s success in administrative and economic reform. He took these statistics such as the KPIs which showed a significant reduction in crime and the roll out of the various Entry Point Projects (EPPs) which were ‘shovel ready’ at face value. Never did it occur to him to attempt to verify the accuracy of these statistics and figures.

    I stand by the critiques of the Economic Transformation Program (ETP) which I co-wrote with Teh Chi Chang and published under the think tank REFSA in 2012. In fact, many of our predictions have been proven right. Our critique that some of the multi-billion Entry Point Projects (EPPs) such as the RM10 billion Karambunai Integrated Resort in Sabah and the RM3 billion Tanjong Agas Oil and Gas and Logistics Industrial Park in Pekan, Pahang did not make financial sense and would prove to be ‘dud’ projects have been right on the mark.[5] This is not the right place to do a complete re-evaluation of the ETP but suffice to say, Dr. Gale did not do his due diligence in this area. Even the checks from the so-called ‘Independent Review Panel’ on the ETP was a creation by PEMANDU which calls into question the extent to which the panel was truly independent.

    (vi) Overlooking the 1MDB and Felda Global Ventures (FGV) scandals

    Dr. Gale knew, even before he started writing this book, that he needed to deal with two elephants in the room, one larger than the other. The first was the 1MDB global scandal and the other was the mismanagement which occurred in Felda Global Ventures (FGV). In his Preface, he stated that both these scandals ‘are not the subject of this study’. He justified this by stating that ‘1MDB and FGV were conceived as corporate strategies, not macroeconomic reform programs’. I would disagree.

    Dr. Gale’s entire premise of Najibnomics was that the decisions taken by Najib have put the country on a sounder economic footing in the long term. But what if we are forced to continue to pay up for the debts of 1MDB moving forward? The US$6.5 billion which 1MDB owes to the London-based and Abu Dhabi controlled International Petroleum Investment Company (IPIC) may have to be paid for by the Malaysian government over the next 5 to 10 years. We must also not forget that the Malaysian government could have directly benefitted from auctioning off the valuable real estate in what is now the Tun Razak Exchange (TRX) and Bandar Malaysia and collecting the proceeds rather than selling these two parcels of land on the cheap to 1MDB so that they could resell the land in order to cover up their own mountain of debt. We must not forget that the Government Pensioners Fund (KWAP) was asked to buy over SRC International which had incurred a debt of RM4 billion (and hardly any valuable assets) from 1MDB.

    The Malaysian government will also be liable for the losses and debts incurred by FGV. If FGV needs a bailout, the federal government has to step in either directly or indirectly via FELDA. This too will have a long-term effect on the financial position of the federal government.

    If Dr. Gale wants to point us towards administrative reforms under the GTP (which includes a National Key Result Area on reducing corruption) and towards global competitive rankings, then he cannot ignore how these reforms were ignored in the case of 1MDB and FGV.

    (vii) Are we better off in the long run?

    Dr. Gale’s definition of Najibnomics is that Najib’s economic legacy has been a positive one for Malaysia in the long-run. I beg to differ.

    In 5 to 10 years’ time, when our contingent liabilities have surpassed RM300 billion and when our debt servicing takes up more than 20% of our federal budget, will Dr. Gale still sing praises of Najibnomics? What if the government is forced to raise the GST to 10% or beyond in order to pay for the debts incurred during the Najib administration? Of course, this scenario may not come to pass but the possibility that it may occur has been completely ignored in Dr. Gale’s treatment of Najib’s economic legacy.

    Dr. Gale gives credit to Najib’s decision making process partly due to his training as an economist at the University of Nottingham. Indeed, he draws attention to the fact that “Najib is the first trained economist to head the government in the nation’s history”. This is not the place to question what aspects of economics Najib learned while he was studying at the University of Nottingham many moons ago or how he applied this knowledge during his career in politics and as Prime Minister. But I do wish that Dr. Gale had used his many years of training in writing about politics and economics to provide us with a more critical and comprehensive examination of Najibnomics and its long-term impact on Malaysia.

    Dr. Ong Kian Ming
    Member of Parliament for Serdang

    [1] http://www.thestar.com.my/news/nation/2010/05/27/idris-jala-msia-must-cut-subsidies-debt-by-2019-or-risk-bankruptcy/

    [2] http://www.themalaymailonline.com/malaysia/article/putrajaya-confirms-pembinaan-pfi-debt-pile-near-rm27b#HfILshAg8w3pwCIR.97

    [3] http://www.thestar.com.my/business/business-news/2011/01/13/pembinaan-blt-plans-rm10b-sukuk/

    [4] http://www.thestar.com.my/business/business-news/2016/06/11/malaysias-debt-burden-eases-as-loans-shifted-to-mortgage-agency/

    [5] http://www.refsa.org/focus-papers/a-critique-of-the-etp-part-3-iii-doubtful-epps-doubtful-achievements-and-due-diligence/

  • Pakatan Harapan (PH) offers a fairer deal to KTMB and its workers

    Media Statement by Pakatan Harapan on the 9th of August, 2017

    Pakatan Harapan (PH) offers a fairer deal to KTMB and its workers

    The Railway Network Access Agreement (RNAA) is an agreement between KTMB and the Railway Assets Corporation (RAC) which will see KTMB transferring all of its rolling stocks and lands to RAC. This exercise is supposed to be completed sometime in 2018.[1]

    Pakatan Harapan is opposed to the RNAA for the following reasons:

    (i)               This is a back door way for the government to provide access to crony companies to use the rail network to undermine KTMB’s core businesses including the freight and haulage business that comprises 42% of its revenue (RM216 out of RM516 million in Financial Year 2015).

    (ii)              This will increase the costs of operations for KTMB because RAC will charge KTMB for the use of the rolling stock.

    (iii)            RAC, with only 38 employees, is in no position to properly manage its assets including the maintenance of the rolling stock and the track. It is likely that these responsibilities would be sub-contracted out to other crony companies.

    KTMB has suffered accumulated losses of RM855 million from 2009 to 2015 because of low ticket prices and expensive procurement contracts. For example, KTMB wasted RM85 million on a contract for an Automatic Fare Collection (AFC) ticketing system that could not be implemented.[2] More recently, the then President of KTM, Datuk Sarbini Tijan, was asked to go on leave pending an internal inquiry on procurement deals worth millions of ringgit.[3]

    RAC has also not been profitable. It has accumulated losses of RM372 million from 2009 to 2015. RAC does not have enough staff to properly manage the RM36 billion in assets including land. Its mismanagement of train maintenance contract payments was reported in the Auditor General’s report in 2013.[4]

    Pakatan Harapan promises a fairer deal to KTMB and its 6000 workers including:

    1)     Cancelling the RNAA between RAC and KTMB

    2)     Transferring the assets in RAC to KTMB as a way to maximize the value of these assets. The small size of RAC prevents it from increasing its revenue from ventures such as transit oriented development and advertising and retail. These assets should be transferred to KTMB and KTMB should be allowed to expand its expertise in these areas. This will be the way forward to KTMB to regain its profitability and also to minimize the need to increase ticket prices.

    3)     Review the cost and suitability of the East Coast Rail Link (ECRL) project. The assets under ECRL i.e. the rolling stock, the track, the land and the stations, will not be owned by RAC or KTM. Instead, it will be owned by a newly established 100% Ministry of Finance Owned Entity, Malaysia Rail Line (MRL) Sdn Bhd. It has been reported that the ECRL service will be run by another operator which has not been named.[5] Not only is the cost of the ECRL extraordinarily high, it is very likely its operations will be awarded via direct negotiation.

    4)     Implement open tenders for all procurements of assets and services by KTMB

    5)     Not to privatise KTMB

    With these policies, we can chart the path towards financial profitability for KTMB, guarantee continued low prices for the passengers and ensure employment security and welfare for thousands of railway workers.

    Tan Sri Muhyidddin Yassin, President of BERSATU
    Liew Chin Tong, MP for Kluang
    Dato’ Abdullah Sani bin Abdul Hamid, MP for Kuala Langat
    Dr. Hatta Ramli, MP for Kuala Krai

    [1] http://www.theedgemarkets.com/article/transport-ministry-says-agreement-will-not-cost-4000-job-losses-ktmb

    [2] http://tonypua.blogspot.my/2011/01/ktmb-rm85m-contract-to-company-without.html andhttp://ongkianming.com/2015/08/22/press-statement-prime-minister-najib-should-look-at-the-failure-of-the-automatic-fare-collection-afc-system-rather-than-asking-for-new-ktm-ticket-counters-to-be-added/

    [3] http://www.thestar.com.my/business/business-news/2017/01/11/rail-controversy/

    [4] http://english.astroawani.com/business-news/highlights-auditor-generals-report-2013-series-2-37880

    [5] http://www.thestar.com.my/business/business-news/2017/03/29/east-coast-rail-kicks-off/

  • Malaysians are voting with their feet by moving to Selangor and Penang

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 30th of May, 2017

    Malaysians are voting with their feet by moving to Selangor and Penang

    In the Migration Report 2016, which was released on the 26th of May, 2017, it was reported that the two states with the highest net migration was Selangor followed by Penang. In the period of 2015-2016, Selangor experienced a net migration of 19,400 persons while Penang experienced a net migration of 12,000 persons (See Chart 4 below).
    Source: Migration Report 2016

    The willingness of people to move to Selangor and Penang is not a short-term phenomenon. According to the data from the 2011 to the 2016 Migration Reports, the net migration for Selangor and Penang were 125,400 and 49,800 respectively making Selangor and Penang the top two states in terms of net migration (See Chart below)

    Source: Migration Reports 2011 to 2016

    The figures from the Migration Reports clearly shows that Malaysians are voting with their feet by moving in large numbers to Selangor and Penang. This is a clear indication that Malaysians have confidence in the state governments of Selangor and Penang under Pakatan Harapan (PH).

    The achievement of Penang is even more remarkable when one considers that it is only the 8th most populous state in Malaysia and yet, it is able to attract the 2nd highest number of net migrants in the entire Malaysia. According to the 2016 Migration Report, “for the period of 2015-2016, Pulau Pinang registered the highest positive effectiveness ratio of migration at 58.4 per cent. This means that the people of Pulau Pinang will be increased by 58 persons for every 100 of inter-state migrants that migrate in and out of the state”.

    On the other hand, the two states with the largest outflow of population are Wilayah Persekutuan Kuala Lumpur and Perak with a net outflow of 163,400 and 40,000 respectively from 2009 to 2016. The reasons for these migration patterns were not given in the Migration Report. But it is likely that the state of Perak is losing population because of better job prospects in places like Selangor and Penang. For Kuala Lumpur, it is likely that it is losing population because of high housing prices and possibly, the more attractive policies offered by the Selangor state government.

    According to the 2016 Migration Report, 61% of out-migrants from Kuala Lumpur moved to Selangor in the period from 2015-2016 while 62% of out-migrants from KL moved to Selangor in the period from 2014-2015 (See Chart 6 below).

    If these trends continue, Kuala Lumpur will soon be a city comprising of mostly rich Malaysians and expatriates and also poor migrant workers.

    Dr. Ong Kian Ming
    Member of Parliament for Serdang

  • Pakatan Harapan will terminate PEMANDU and conduct a forensic audit of all of its activities

    Media Statement by Pakatan Harapan Manifesto and Policy Committee issued on the 5th of May, 2017

    Pakatan Harapan will terminate PEMANDU and conduct a forensic audit of all of its activities

    The Performance and Management Delivery Unit (PEMANDU) in the Prime Minister’s Department was launched by the Prime Minister with much hype in 2010. Since its creation, PEMANDU has commandeered much power and resources, spent a lot of money on publicity seeking events and took the lead in ‘spin doctoring’ many of the supposed achievements by the BN government. In reality, it has failed to deliver on its main KPI, failed to be accountable to parliament and the public and most recently, ensnared itself in possible conflict of interest situations. Upon winning GE14, Pakatan Harapan will abolish all government contracts with the newly formed PEMANDU Associates Sdn Bhd and initiate an extensive forensic audit into all of the activities of PEMANDU Corporation including disclosing the salaries of the directors of PEMANDU and all the salient financial terms payable to this private company. Instead of engaging expensive external consultants to direct the civil service, Pakatan Harapan will channel resources directly to the civil service to empower them to do their jobs professionally and to introduce reforms that will make the civil service more independent, transparent and effective.

    (i) Failure to meet its GNI per capita target for a high-income nation

    The key target outlined in the Economic Transformation Program (ETP) 2010 Roadmap Report was for Malaysia to reach a high income nation status of US$15,000 GNI per capita by 2020 (See Exhibit 1 below).


    Source: ETP Roadmap 2010, pg.9

    This target has been referred to in each of the ETP Annual Reports from 2011 to 2014 and also in the 2015 National Transformation Program Annual Report. But what is clear is that we are still very far from the US$15,000 GNI per capita target as show in Chart 1 below. In fact, Malaysia’s GNI per capita has increased by a mere US$490, from US$8636 in 2010 to US$9057 per capita in 2016, or a 4.9% in 6 years. (See Chart 1 below) Based on this statistic alone, PEMANDU has failed.

    Chart 1: GNI per capita current prices (US$) 2010 to 2016

    Source: GNI statistics are from the Department of Statistics, Exchange rate data is the World Bank data showing the average US$ to RM exchange rate for that year (Figures differ slightly from the World Bank GNI data calculated using the Atlas method)

    The issue has been previously highlighted by IDEAS Head of Research Ali Salman and raises questions as to whether Malaysia can reach the high-income nation target by 2020.[1]

    (ii)                Failure of Accountability

    In a piece in The Malaysian Insight, a PEMANDU executive stated the following: PEMANDU also reported to the EPU, the Prime Minister’s Department and was accountable to Parliament.[2] We are unsure as to what the executive’s understanding of parliamentary accountability is, but in his 6 years as a member of the cabinet, the CEO of PEMANDU, Idris Jala, never once appeared in parliament to answer any single parliamentary question that concerned PEMANDU. In fact, he never answered anything or said anything in parliament. Given that he was heading two programs – the ETP and the Government Transformation Program (GTP) – that is supposed to bring about transformational changes in the country, it is disgraceful that he found it unnecessary to answer any questions in the most important elected institution in the country. This is a massive failure from an accountability standpoint.

    In addition, even though PEMANDU published annual reports for the ETP and GTP and starting from 2015, the National Transformation Program (NTP), it di not table any of its reports in parliament nor distribute them to Members of Parliament. It does not table its own financial accounts in parliament nor tell parliament how much PEMANDU has spent for its various activities. And despite many public criticisms, it has not made known how much its staff gets paid, which according to some reports, is higher than the Prime Minister’s salary.[3]

    Furthermore, PEMANDU has the audacity to ask for RM10 million and RM15 million from the government to organize the Global Transformation Forum 2015 and 2017 respectively at the same time as it is preaching values of fiscal prudence on the part of the federal government.[4]

    While it uses the language of good corporate governance and transparency, PEMANDU does not apply any of these standards to itself.

    (iii)              Conflicts of Interest

    All of the staff of PEMANDU Corp, a 100% Ministry of Finance owned entity, has now been transferred to PEMANDU Associates Sdn Bhd, a private entity that is 50% owned by Idris Jala. Starting from 2017, PEMANDU Associates will sell its services to the government by placing its staff in key ministries to continue the NTP. At the same time, this new private entity will be free to sell its services to other government ministries, at home and abroad. Furthermore, since the beginning of 2017, Idris Jala has been occupying the position of the Chairman of Heineken Malaysia, a public listed company.

    The position of Idris Jala as the chairman of a publicly listed company and the president of a private company which is deeply embedded into the inner workings of the federal government via its work in the NTP, raises serious questions with regards to possible conflicts of interest.[5] Until today, he has not even attempted to explain these conflicts of interest.

    For these reasons and immediately upon winning GE14, Pakatan Harapan will terminate all existing contracts with PEMANDU Associates Sdn Bhd. We will initiate a forensic accounting investigation into all of the expenditure undertaken by PEMANDU Corp and BFR Institute, both of which are 100% MOF owned entities, including how much was paid to each and every celebrity speaker for the 2015 and 2017 Global Transformation Program. We will publicly disclose the salaries received by PEMANDU directors.

    Finally, rather than spending obscenely on external consultants, Pakatan Harapan will channel resources directly to the civil service to empower them to carry out its functions more independently and and professionally. Pakatan Harapan will also call upon respected retired civil servants to help us reform the civil service to its former glory days of integrity, transparency and effectiveness.

    Dr. Ong Kian Ming (DAP)

    Wong Chen (PKR)

    Dr Dzulkefly Ahmad (AMANAH)

    Dr Rais Hussin (PPBM)

    [1] http://www.ideas.org.my/news/press-statements/government-intervention-causing-malaysia-to-lose-competitive-edge-as-average-income-of-malaysians-drops-by-15-according-%E2%80%8B%E2%80%8B-to-latest-epu-figures/

    [2] https://www.themalaysianinsight.com/s/2430/

    [3] http://www.malaysiakini.com/news/149861

    [4] http://www.malaysiakini.com/news/377108

    [5] http://www.beritadaily.com/idris-position-in-pemandu-and-heineken-questionable-says-dap-man/

  • 10 questions on the Employment Insurance Scheme (EIS)

    Statement by Pakatan Harapan on the Employment Insurance Scheme (EIS) on the 28th of April, 2017

    10 questions on the Employment Insurance Scheme (EIS)

    As we approach Labour Day on the 1st of May, we acknowledge the contributions which the workers in Malaysia have made to the country. The proposed Employment Insurance Scheme (EIS) by the Prime Minister, which is expected to be tabled in parliament in the July / August 2017 sitting, has the potential to help Malaysian workers through a transition process when they have lost their jobs. But given that the details of this scheme have not been disclosed and there is no parliamentary committee set up on look at the issue of jobs, employment and the economy, there remains many questions to be asked about the EIS.

    Here, we pose the following 10 questions to be answered so that there can be greater confidence that the EIS will be an effective program to help the workers in our country.

    1)                  Retrenchment compensation is currently spelled out in the Employment Act 1955 and the Employment Termination and Lay-Off Benefits (ETLB) Regulations 1980. Will the retrenchment compensation continue to be paid out by the employer after the introduction of the EIS? Will workers be worse off in the long run if retrenchment benefits are cut / abolished as part of a package deal for introducing the EIS?

    2)                  The estimated amount collected will be between RM700m to RM800m a year (based on 0.25% Employers and Employees contribution, 6.5m workers, RM2000 salary). How much will the administrative costs be? Will it be as high as 25% of the amount collected as some reports have indicated?

    3)                  Since the EIS is an insurance scheme like SOCSO, does this mean that employees won’t be able to get back these funds if they don’t get retrenched in their lifetime? How much disposable income will the EIS scheme take away from the regular worker over their lifetimes?

    4)                  How with the EIS funds be managed? Will it be managed in the same manner as the SOCSO funds which has delivered returns that, on average, are lower than EPF’s returns?

    5)                  One of the purpose of the EIS is to help retrain and reskill workers who have lost their jobs. How will these retraining and reskilling programs be different from existing programs which are being implemented by the government such as Skim Latihan 1 Malaysia (SKIM) and others? The government must provide a convincing case that the provision of retraining schemes under EIS will be more effective than current programs.

    6)                  There are already existing training schemes provided and paid for by the sums collected from employers and managed by the Human Resources Development Fund (HRDF). There have been numerous reports that more than RM100m of this fund has not been used by employers for retraining purposes. Can existing HRDF scheme be utilised better for retraining purposes? What is to say that the proposed EIS scheme will not end up like the HRDF scheme i.e. lots of unused funds that are not put into retraining schemes?

    7)                  Initial reports indicate that only those workers who are currently being covered by SOSCO i.e. those earning less than RM4000 a month will be eligible for the EIS scheme. But many middle-income workers are also being retrenched these days including those in the financial industry and the oil and gas industry. What kinds of plans and programs does the government have to help these workers who are in the M40 category?

    8)                  Estimates by Malaysian trade unions show that workers lose between RM50 million to RM100 million a year from lost compensation as a result of companies going bankrupt but RM700 million to RM800 million will be collected from the EIS scheme, half of which are coming from workers. Is this an effective approach to solving the non-compensation issue?

    9)                  One of the main reasons why workers at the lower end of the economic spectrum are losing their jobs is because of employer preference for foreign workers. If the government does not have a comprehensive plan to reduce our reliance on foreign workers, how effective will the EIS scheme be? How easy will it be for the workers who have lost their jobs to find new jobs, especially when they have to compete with lower paid foreign workers?

    10)               Some countries in Asia which have employment insurance schemes also feature government contributions to these schemes (Thailand – 0.25%, Taiwan – 0.1%, Vietnam – 1%). Has the government considered having its own contribution to this scheme to decrease the financial burden on employers and employees alike?

    Dr. Ong Kian Ming, DAP
    Sim Tze Sin, PKR
    Dr Dzulkifli Ahmad, AMANAH
    Dr Rais Hussin, BERSATU

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