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  • Kai Hui Wong

How govt will tackle Covid-19's economic impact in Parliament

This article was first published at

Published:  Aug 20, 2020 12:55 PM

KINIGUIDE | 2020 is shaping up to be an eventful year full of unexpected twists and one where the Malaysian economy has been significantly affected by the Covid-19 pandemic and various movement control orders implemented by the government.

Three bills have been tabled in the current Parliament session on the adjustments to the bankruptcy threshold, setting up of a Covid-19 fund for various stimulus packages, and amendments to the contractual obligations of entities and individuals.

In this instalment of KiniGuide, we guide you through the main points of these three bills.

First bill: Temporary Measures For Government Financing (Covid-19) Bill 2020

The Temporary Measures For Government Financing (Covid-19) Bill 2020, or the Covid-19 financing bill, was tabled by Finance Minister Tengku Zafrul Abdul Aziz for its first reading on Aug 6 and its second reading on Aug 18.

There are two main points in this bill. Firstly, it seeks to raise the national debt-to-GDP ratio limit. Secondly, the bill seeks parliamentary approval for a RM45 billion Covid-19 Fund.

Raising the debt-to-GDP limit to 60 percent

Malaysia's gross domestic product (GDP) for 2020 is expected to be significantly lower due to the economic challenges resulting from the Covid-19 pandemic.

This will result in lower government tax revenues due to reduced income for corporations and individuals.

With revenues declining, the government would need more money to implement the various economic stimulus packages, and it will likely need to issue bonds and increase the national debt.

Malaysia has imposed a self-regulated ceiling of debt-to-GDP which is 55 percent.

Section 3 of the bill prescribes that the ceiling amount would be increased to 60 percent from the date the Act is published in the Federal Gazette until Dec 31, 2022.

When the temporary law is in effect, the original statutory ceiling will be suspended.

The old ceiling of 55 percent will be effective again on Jan 1, 2023, when this temporary law expires.

Retroactively legalise spendings on stimulus packages

The first economic stimulus plan was announced by then prime minister Mahathir Mohamed on Feb 27, 2020, amidst the political crisis resulting from the "Sheraton Move".

In the following months, Prime Minister Muhyiddin Yassin, who took over from Mahathir, had then unveiled the Pakej Rangsangan Ekonomi Prihatin Rakyat (Prihatin), Langkah Tambahan Bagi Pakej Rangsangan Ekonomi Prihatin Rakyat (Prihatin PKS), and Pelan Jana Semula Ekonomi Negara (Penjana) stimulus packages on March 27, April 6, and June 5, respectively.

Normally, all government operations or development expenditures must seek parliamentary approval by tabling a budget. This is done via a Supply Bill or a Supplementary Supply Bill.

When facing the unexpected and rapid economic impact caused by the Covid-19 pandemic, the additional expense of various economic stimulus plans launched by both the Pakatan Harapan and Perikatan Nasional governments were not included in Budget 2020.

Section 1 of the proposed bill states that the Act will be deemed to have come into operation on Feb 27, 2020, and shall continue to remain in operation until Dec 31, 2022.

This means that it has the retroactive effect to “legalise” the past spending of the various stimulus packages.

Establishment and application of Covid-19 Fund

This proposed Act will also confirm the establishment of a RM45 billion Covid-19 Fund, which will be incorporated into the Second Schedule to the Financial Procedure Act 1957.

The application of the RM45 billion fund is prescribed in the bill.

The “wage subsidy, job retention, and workers’ hiring incentive, and training assistance programmes” is the fund's largest expenditure, which costs RM16.8 billion or 37.3 percent of the total amount.

Meanwhile, the Bantuan Prihatin Nasional (BPN) payments comprised the second-largest expenditure, accounting for RM11.2 billion or 24.9 percent of the fund.

The proposed Act seeks to require the finance minister to prepare a statement of receipts and expenditure of the Covid-19 Fund every financial year as required under paragraph 16(1)(c) of the Financial Procedure Act 1957.

The Covid-19 Fund's statement will be published in the annual Federal Government Financial Statement.

In the proposed bill, paragraph 5(1) ensures that the Covid-19 Fund will only be used for programmes under the economic stimulus packages specified in the Schedule of the Act.

Paragraph 5(2) empowers the finance minister to limit or suspend allocations of the economic stimulus packages and economic recovery plans, and to transfer the surplus from any program to another.

The proposed Act prescribes that the Covid-19 Fund needs to be paid within six months from the date of expiry of Dec 31, 2022, and the balance of the fund should be channelled to the Development Fund specified in the second schedule to the Financial Procedure Act 1957.

After that, the Covid-19 Fund should be deemed dissolved, and the Dewan Rakyat should delete the “Covid-19 Fund” from the Second Schedule to the Financial Procedure Act 1957.

Second bill: Insolvency (Amendment) Bill 2020

In short, the government is seeking parliamentary approval to amend the Insolvency Act 1967 to raise the bankruptcy threshold in light of the Covid-19 pandemic.

To raise the current bankruptcy threshold, it was proposed that paragraph 5(1)(a) should be amended to increase the minimum debt threshold, for the presentation of a bankruptcy petition, from RM50,000 to RM100,000.

Meanwhile, by adding subsections to Clause 5, this proposed bill suggests empowering the law minister to amend the bankruptcy threshold on special circumstances.

The new subsection 5(1A) prescribes that the de facto law minister may, after consultation with the finance minister, by order published in the Federal Gazette, amend the amount of debt threshold for a “specific time period”, if the finance minister is satisfied that there are “special circumstances” and that it would not be contrary to the public interest.

After the decision has been gazetted, the order made under Clause 5(1A) would still need to be put before the Dewan Rakyat as soon as practicable.

Minister in the Prime Minister's Department Takiyuddin Hassan tabled the Insolvency (Amendment) Bill 2020 for its first reading on Aug 12.

Third bill: Temporary Measures for Reducing the Impact of Covid-19 Bill 2020

The movement control order (MCO) and domestic containment measures imposed since March 18 had inevitably disrupted the operation of various entities and the lives of individuals.

The “Temporary Measures for Reducing the Impact of Covid-19 Bill 2020”, or the Covid-19 Relief Bill, aimed to provide relief to those who are unable to perform their contractual obligations due to the containment measures.

Takiyuddin tabled the Covid-19 Relief bill for the first reading on Aug 12. The second and third readings of the bill are expected during the current Dewan Rakyat sitting.

This bill involved time-limited modifications to 16 laws. Briefly, the most important part of the bill is Section 7.

Section 7 states: "The inability of any party or parties unable to perform any contractual obligation of specific categories of contracts due to the measures prescribed, made or taken under the Prevention and Control of Infectious Diseases Act 1988 to control or prevent the spread of Covid-19, shall not give rise to the other party or parties exercising his or their rights under the contract."

There are seven categories of contracts in the schedule under Section 7:

  1. Construction work contract or construction consultancy contract and any other contract related to the supply of construction material, equipment, or workers in connection with a construction contract.

  2. Performance bond or equivalent that is granted pursuant to a construction contract or supply contract.

  3. Professional services contract.

  4. Lease or tenancy of non-residential immovable property.

  5. Event contract for the provision of any venue, accommodation, amenity, transport, entertainment, catering or other goods or services including, for any business meeting, incentive travel, conference, exhibition, sales event, concert, show, wedding, party, or other social gathering or sporting event, for the participants, attendees, guests, patrons, or spectators of such gathering or event.

  6. Contract by a tourism enterprise as defined under the Tourism Industry Act 1992 [Act 482] and a contract for the promotion of tourism in Malaysia.

  7. Religious pilgrimage-related contract.

The term “professional services” in the third category seems to have a broad scope, but the bill does not specify details.

It is worth noting that Section 8 of this bill empowers the law minister to amend the above-mentioned schedule by order published in the Federal Gazette.

Disputes “may” be settled by mediation

According to Section 9 of the proposed Act, the parties involved in contract disputes "may be settled by way of mediation" to reach a legally binding agreement.

Normally, the legal term "shall" means "must", but this provision uses the wording "may", which indicates that mediation is not compulsory.

The minister “may” also determine the mediation process, which includes the appointment of a mediator, their role and conduct, as well as the conclusion of the mediation.

However, the details of the mediation process were not written in the proposed bill.

The bill only states that the parties should sign the settlement agreements, and it is binding on the parties.

Disputes arising from March 18 to Dec 31

Compared to the above-mentioned two bills, the structure of the Covid-19 Relief Bill is more complicated and consists of 19 parts.

The whole temporary measures act will be effective for two years. However, there are different periods of operation as stated in the respective parts.

Section 2 also empowers the prime minister, through an order published in the Federal Gazette, to extend the operation of this Act.

For the part of “Inability to perform contractual obligations”, Section 5(1) prescribes that “this Part is deemed to have come into operation on March 18, 2020, and shall continue to remain in operation until Dec 31, 2020”.

However, if the dispute has been settled between March 18, 2020, to the date that this Act comes into operation, the settlement will still be deemed as valid.

In other words, the provisions of the Covid-19 Relief Bill do not apply to settled disputes.

For ongoing contractual disputes arising after the MCO was imposed, this proposed Act could be seen as a timely help.

Time-limited modifications to 16 laws

To implement the relief of contractual obligations, the Covid-19 Relief Bill also seeks to modify another sixteen laws. The laws are as follows:

  • Limitation Act 1953

  • Sabah Limitation Ordinance

  • Sarawak Limitation Ordinance

  • Public Authorities Protection Act 1948

  • Insolvency Act 1967

  • Hire-Purchase Act 1967

  • Consumer Protection Act 1999

  • Distress Act 1951

  • Housing Development (Control and Licensing) Act 1966

  • Industrial Relations Act 1967

  • Private Employment Agencies Act 1981

  • Land Public Transport Act 2010

  • Commercial Vehicles Licensing Board Act 1987

  • Courts of Judicature Act 1964

  • Subordinate Courts Act 1948

  • Subordinate Courts Rules Act 1955

The details of the modifications to the above laws are stated from the third to 18th part of the bill together with respective operation periods.

Section 3 of the bill also states that in the event of any conflict or inconsistency between the provisions of the Covid-19 Relief Act and any other written law, the provisions of the Covid-19 Relief Act shall prevail.

Meanwhile, Section 59 of the bill seeks to empower the “minister charged with the responsibility for any Act” to provide for alternative arrangements for any statutory meeting.

This will occur if the statutory meeting is not possible to be convened due to any measures imposed to control or prevent the spread of the Covid-19 pandemic.

“This Bill will involve the Government extra financial expenditure the amount of which cannot at present be ascertained,” read the last line of the explanatory statement of the bill.

The ongoing parliamentary session will continue until Aug 27. More debates on the above three bills are expected next week during the second and third readings of the bills.

The earliest these bills can be gazetted will be in September. Amendments of the bills may occur during the second and third readings.

This instalment of KiniGuide is compiled by Wong Kai Hui.


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