After all the hype about the possibility of a 1% cut in personal tax rates not materialising, Budget 2008 was a bit of a letdown for me. Still, one of the best things for me this year is the government now allowing the monthly housing loan repayments to be made from our EPF account 2. At long last!!

I remember this being my single biggest beef about the EPF scheme when I first relocated back to Malaysia from Singapore 10 years ago. Compared to the Singapore CPF  (back then a whopping 40% of one’s gross salary) which could be used to make monthly housing instalments, our EPF system, not only lower at 23% but also allowing housing withdrawals only once every 3 years, seemed positively archaic! Not to mention the mountains of paperwork that had to be produced each time one needed to make a withdrawal.

Aaah the sacrifices we make for country, and ….good roti canai, fried kway teow, nasi lemak etc!!

The reduction in the frequency of withdrawals from once every 3 years to once a year (the existing scheme) to once a month (starting next year) is a vast improvement indeed! Even though it’s taken them an eternity to get here. 

But according to an article in the Star today, the Second Minister of Finance announced that the withdrawals will be credited directly into the EPF account holder’s personal bank account. Not the housing loan account, as one would have expected. This is quite bizarre. After the abuse cases, with the PC ownership scheme, you’d think they might have learnt a lesson or two. Details are still sketchy and have yet to be announced. It seems clear though that any EPF account holder can apply for the monthly withdrawal provided they have a housing loan. Wow! That’s easy.

Why is the government doing this you ask? Well, apparently the aim is to stimulate further economic growth by shifting from an export-based economy to a consumption-led economy. Makes sense given our fast-growing and young population. So, young (and not so young) Malaysians who are EPF contributors who typically utilized up to 30% of their disposable income to pay off their housing loans can now instead tap into their EPF funds to make the repayments.  This leaves them with voila! more disposable income to spend on other goods and services, leading to higher profits for suppliers, more investments and spurring economic growth.

So let’s work out how much more disposable income an employee on a salary of RM5,000 stands to “gain” from the new ruling.

Salary – RM5,000

Monthly EPF contribution (12% employer + 11% employee = 23%) – RM1,150

Account 2 (30% of RM1,150) – RM345

That’s RM345 more in your pocket each month. Not quite enough for an Ipod, but not chump change either 🙂 Now multiply this by just 20% of the reported 5 million active EPF contributors, or 1 million and we have RM345m more liquidity in the “system”  every month.