Two days ago, the Government announced some measures to combat the economy slowdown, one of which is to reduce the employees contribution to retirement fund. This will put more disposable income into the consumers hands. The Government hopes that this additional disposable income will be spent on the economy.

However, this move has drawn fierce criticisms from workers and employers. And they are not without merit.

By reducing the amount of contribution to the retirement fund, the tax relief will be reduced and so the employees will be taxed more. This is true if the employee has not maximized his tax relief. The additional tax burden is higher the higher the person’s tax bracket.

Many view the retirement fund as a long-term savings account for the retirement years. By contributing less to the fund, we are saving less for our future.

When announced, this scheme was said to be voluntary. But the EPF has come out to say that everybody is automatically enrolled into this scheme. One can choose to opt-out by going through a formal application process. Many believe that “voluntary” means people who wants to contribute less will opt-in rather than having those who wants to contribute more to opt-out. No doubt the Government opted for this route because many people are too lazy to take action, hence the Government would have more people enrolled into this scheme.

There are some people who will be happy contributing less to the retirement fund. One often cited reason is the rate of return on the fund is low. These individuals believe that they would earn a higher rate of return than the fund. So they would prefer to manage their own money rather than having the fund to manage for them.

Others prefer to have more disposable income to pay for bills. Rising cost of living in the last 6 months have greatly eroded disposable income. The prices of many goods and services that have gone up in tandem with the energy costs increase have not gone down despite the reduction in energy costs now. Many families are finding it difficult to make ends meet and having more disposable income gives them some breather.

Also, some people who are opposed to bailout of companies will choose to contribute less. These people believe that the Government would use the retirement savings of the people to bailout companies.

The current financial crisis reminds me of a saying. “One bird in hand is worth more than two birds in the bush”.

I had just graduated from college during the previous recession after the Dot Com crash in 2001. The economy in my country was just starting to pick up after the Asian Financial Crisis of 1997/1998. Therefore, the impact of the Dot Com crash did not hurt much because we were already wiped out in 1997.

Another reason why the Dot Com crash did not hurt the economy in Asia much was because there were not many Dot Com companies in Asia back then.

This time around, I could clearly see the impact of the financial meltdown. I could finally appreciate the meaning of “globalization”. The financial crisis on Wall Street has affected share markets around the world.

Overnight, Lehman Bros lost 80% of its value. AIG lost 40% over a weekend. These are difficult times for stock investors. Billions of wealth have been wiped out since the outbreak of the sub-prime mortgage crisis in August 2007. The worst hit are those whose retirement funds are tied to these stocks.

In these uncertain times, investors may wake up day after day to find that their personal wealth has decreased again and again. Now is truly the time to embrace “one bird in hand is worth more than two birds in the bush”. Cash is King.

Really. Not Cash Color, but Cash Cow. That’s how I felt when I first heard the Budget 2009 tabled by the Prime Minister on August 29th.

The recent hikes in prices of gasoline, electricity, and food have caused a broad increase in prices of many products and services. Expectations were high for Budget 2009 to reduce the household and individual financial burdens. Alas, I stand to only save a maximum of RM150 in income tax. The middle income group feels let down by this budget.

The Government must have the impression that people in my group (Single with no children, earning middle income, potential stock investor) are Cash Cows.

Last year, the Government announced as an effort to simplify corporate tax administration, the corporate tax system will switch from Imputation System to Single-Tier System. This simply means that a tax at the corporate level is final. And investors in the lower tax brackets will no longer be able to claim tax refunds for the corporate taxes paid.

This year, a high allocation was given to the poor and lower income group. Even the richest people get a tax rate reduction from 28% to 27% saving them thousands, possibly millions in income tax. My group gets a tax rate reduction from 13% to 12% resulting in a potential maximum tax savings of only RM150.

Why is the Government turning a blind eye to the cries of help from the middle income group? Why is the Government reluctant to increase the tax brackets? Why didn’t the Government allow home mortgage interests to be used as tax relief like in the past?

The reason as I see it is because my group is the Cash Cow. The Government cannot continue to tax the poor and lower income because they can no longer afford to pay the same level of tax as prior years due to the increase in cost of living. Also, the Government has to close the loophole and reduce the gap between the corporate tax rates (25%) and the individual tax rates (now from 28% to 27%). This leaves my group as the only group of taxpayers the Government could depend on for consistent income tax revenue. This is why the Government wants to milk my group as much as it can.

I can feel the pain in my wallet. “Moooo.”