By Arixion / Writer
SOME THINGS just do not change. This fact was well-illustrated In the recently-announced Budget for 2009.
As usual, the bulk of the Budget goes towards defence, a low priority at a time where our neighbouring countries are suffering from economic crisis, coupled with fractious politics. We are more capable of invading them than they are of invading us.
Then there is the normal government reticence towards welfare, even on a short-term basis. There is little point in the Long-Run if “in the long-term, we will be dead”.
And then there is the Jobs Credit Scheme (JCS). It is marketed as a means of helping Singaporeans to hang on to their jobs, but in practice follows the trickle-down concept of long-term growth, which has always been a key philosophy of this Government. The principle behind the JCS is to subsidise the wage costs of companies so that they hopefully will not retrench and hopefully will start hiring new workers.
The problem? “hopefully” is not indicative of confidence, the thing we need the most. Banks need confidence to lend. Companies need confidence to endure the necessary short-term losses from hanging on to spare capacity – which essentially is the effect of the JCS on them. The rest of us need confidence in our financial system, and in our ability to survive on what we have. But JCS does not guarantee jobs; worse still it does nothing to help those already without jobs.
So, the question is: is there a better solution than the JCS? The Government thinks not. I beg to differ. I wish now to propose an alternative solution, which I shall call the Rainbow Credit Scheme (RCS).
The gist of the RCS is simple. It stimulates domestic demand, which increases business confidence, which increases confidence of banks to lend. It then uses business confidence to boost foreign demand, which boosts foreign business confidence, which increases confidence of foreign banks to lend. More lending means more opportunity for growth, then less retrenchment and more employment.
The basic provisions are simple too. It is composed of 2 parts. The first is a re-directed $20.5 billion dollars from the JCS. The second is a smaller $600 million granted directly to people living and working in Singapore.
Now for the details.
But first a word of warning: I will not claim to have a Masters Degree or PhD in Economics, so I do not claim to have absolute insight on any other side-effects this policy might have. What I do hope is to ignite the brains of our scholars or other people on the Web to think of an alternative to JCS.
Step 1: Creating the $20.5 billion (+) ‘Rainbow’ Credits
An appreciating Sing Dollar reduces the cost of buying foreign currencies.
Bearing this in mind, the RCS begins with the MAS converting the $20.5 billion (or more) into a basket of currencies, specifically: US Dollar, Euro, Yen, Yuan and Pound; according to the relative sizes of our trade volumes with their home countries.
Step 2: Issuing RC Coupons
The $600 million (+) is used to provide a set of coupons for people by household. Each person in the household receives $100 (+) worth of RC coupons. The net cost of each RC is $1.00 (+) for the Government.
Step 3: Supplementary Price System
The Ministry of Trade and Industry (MTI) then fixes a price of 1 RC for anything sold in Singapore. So Singaporeans can now buy anything at either 1 RC or the listed price (in Sing Dollar). The only item that will not come under this is COE, because of the necessity of preventing traffic congestion. For goods that are normally taxed, like alcohol and cigarettes, they will be given a fixed duty (in Sing Dollar) instead.
This will stimulate consumer confidence; hey, you get your first 100 (+) goods literally free-of-charge! Unlike the JCS and Workfare, RC is distributed equally to all people in Singapore, including the currently unemployed.
Businesses benefit from 600 million (+) goods and services waiting to be sold locally alone. That may not be as large as the usual, but is still a considerable amount.
Step 4: Releasing the Rainbow Credits
At this stage, the MAS sets up a system to allow Individuals and Companies to redeem their RC coupons for portions of the converted $20.5 billion (+), subject to conditions.
Here is where the Government re-directs investment to long-term growth sectors. The Government can choose to provide larger portions for Companies in those sectors, for instance Biotechnology or Digital Media.
Once businesses are afloat, banks will feel more confident about lending. And increased business confidence will avert retrenchments and spur job creation once the worst is over. So, our workers gain again.
The effect of this is to direct resource spending on imports. Most of the $20.5 billion (+) will be used to finance imports from the 5 countries that just happen to be the world’s 5 largest economies: USA, Japan, Europe (Germany), China and Britain. A boosting in our imports will boost their exports.
Step 5: Foreign Diplomacy
And we are still in luck: this year happens to be the year when we are hosting the APEC summit. It also happens to be the year when the USA and China are on the same page with regards to the Global Economy.
the RCS will have some impact on the Global Economy, even if Singapore is the only country following it. But it will have much more impact if more countries join it. It is not a currency union; there is no fear of loss of sovereignty. It is not protectionist either.
For both politicians who want to be elected (as in the West) and politicians who require political capital to justify suppression of dissent (as in China), the RCS provides a win-win situation. It provides both a short-term cushion and a long term effect.
So, the final step of the RCS is for our diplomats to sell it – especially to the USA and China – at November’s APEC Summit.
A Last Comment
If you like this suggestion, please spread it to your friends and better still one of those Scholars working for the Government.
This crisis is disastrous; radical solutions are required to solve its radical problems. The question is: do we have the political will to do so?
HELP keep the voice of TOC alive!
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7/2/09
Good article but not feasible. Allow me to propose what I have written on a similar JCS ie allocate S$1-2billion via Banks as easy clean and unsecured loans or so called micro credit minimum S$5,000 to S$100,000 for only Singaporeans to kick start their businesses (the unemployed graduates and retrenched can apply or given priority). This will revive the Singapore entreprenuship spirit which has been dead.
Regards
Andrew Chuah
Thanks Arixion for effort to write this article. I am confused by your proposal.
There are a few points that I will like to bring out, ‘
(1) The JCS is not $20.5B, it is like $4.5B. $20.5B is the whole budget. If you direct $20.5B to foreign currencies today, all the MPs, Police, Civil Servants and Perm Sec Chefs have no salaries for one, haha. ERP will be off too because no money to pay electricity.
(2) I missed the part about “most of the $20,.5 will be used to finance imports from the 5 countries that just happen to be the world’s 5 l A boosting in our imports will boost their exports. Largest economies: USA, Japan, Europe” (Germany), China and Britain. Why will that happen?
Imagine Singapore is a mee pok seller in a busy hawker center. You give $20.5 to 5 guys from USA, Japan, Europe, China and Britain. Then ask them to spend. Then they go to your neighbours, mee siam man and chicken rice stall and nasi brani. One guy maybe USA say can I have your Mee Pok and pay you $2.50. There is such a thing call trade deficit my dear.
(3) “Here is where the Government re-directs investment to long-term growth sectors. The Government can choose to provide larger portions for Companies in those sectors, for instance Biotechnology or Digital Media.”
Directing more money into Glaxosmithes (Biotech) and George Lucases (Digital Media) is exactly repeating the same mistakes as investing in the MNCs that are pulling out of Singapore now…Investing in local enterprises is the key. Whenever you hear Lenovo layoffs they start with Singapore and not China, when you hear Motorola layoffs they start with Singapore and not US, when you hear Honda layoff they cut more in UK and not Japan, when you hear Nokia layoff they cut Japan and not Finland….when you hear Creative layoff they cut more overseas then Singapore…
We have no quick fix to our economic problems, partly brought by the Global Economic crisis and partly brought by our own structural problems in the Singapore economy.
1) Andrew Chuah
“so called micro credit minimum S$5,000 to S$100,000 for only Singaporeans to kick start their businesses (the unemployed graduates and retrenched can apply or given priority).”
YES YES YES!!! You have got the point!!!! You have my vote if you are running for MP. The capital (no matter the amount as it commensurate with the business that the person is starting) is exactly what is needed to start local enterprises. Wow I am truly impressed as a seasoned entrepreneur myself.
“the RCS will have some impact on the Global Economy, even if Singapore is the only country following it.”
I just googled the US GDP which stands at US13.84Trillion. $20.5 stands at approximately 0.09% of that. So I am not sure how many Gazillions is the world GDP so I conclude that this action with $20,5B is like throwing meat baos to the dogs.
How is it different from a consumption voucher idea implemented in Taiwan?
It is like your idea is to give $200 worth of RC to Singaporean adults to spend. Is that a good summary of the idea?
(1) The JCS is not $20.5B, it is like $4.5B. $20.5B is the whole budget. If you direct $20.5B to foreign currencies today, all the MPs, Police, Civil Servants and Perm Sec Chefs have no salaries for one, haha. ERP will be off too because no money to pay electricity. – Sad and now sadder (#1)
S$20.5B is the size of the Resilience Package, of which JCS makes up S$4.5B.
I wonder is there a solution in place to
encourage employers who do not need to retrench to hire singaporeans
even for jobs they may be over-qualified to perform in this time of crisis to help solve the unemployment problem? This means providing temporary job shelter.
I suggest addional corporate tax incentives for companies who contributed in this way.
I agree with Sarek_home #5.
But 1 uncle came out and said giving money to locals won’t help much. as money flows out.
Anyways, I believe it will 100% help boost the economy to a certain extent as confidently as those who said JCS will be effective.
and I do not have a business plan kind of thing to prove this would work.
Just based on example of TW which successfully boosted their economy even if to a limited extent. If it works , means it works. TW also may consider giving out more vouchers later where necessary.
Andrew Chuah,
while entrepreneurship is a laudable goal, it should not be the focus in this period of time. We need better business conditions before entrepreneurship can flourish, notwithstanding the few MNCs that were born during recessions.
Sad and now sadder,
2) You need to read the Budget Again. $20.5 billion is SEPARATE from the main Budget.
But Okay, I concede that I used the wrong numbers. Anyway, the main point here is the Concept, not the numbers.
3) That is the point: One Country’s Trade Deficit is another Country’s Trade Surplus. This proposal doesn’t expect the USA, UK, EU, China or Japan to spend on us immediately. What it expects is that they will spend on other countries, and those countries in turn will spend on us. Or anyhow, somewhere down the line, we will get back the money – in full, not just the trickle that the JCS promotes.
4) Well, I am trying to suggest something palatable to the Government; If I were ruling Singapore, I would invest in something completely different, because I understand the point about local Companies, and MNCs in General. But I am not, so well, use something that they can associate with.
5) No quick fix, but at least a cushion.
6) Same point. as Andrew. Although we must deal with structural problems, with so much misery flowing in the economy, now is really not the time.
7) $20.5 billion is “like meat to the dogs”. Well yes, except that money works in mysterious ways. $20.5 billion is an injection to the economy, and it will not stay as $20.5 billion. Depending on the economy, the $20.5 billion will increase because it is subject to a multiplier.
And this is especially true for the USA. The total economy of the USA is 13.4 trillion, but divide that by 50 states and you get 286 million per state. Unsurprisingly, a huge proportion of US domestic market comes from inter-state trade, so if you boost the revenues of just a few states, you can get them to recover, start buying from other states, and everybody will be happy again. If you just give $1 billion to a state, that is 5 times its total economy. 500%, not 0.09%.
Even if you consider it on an aggregate level, considering that the White House is only providing a $800 billion stimulus package, $20.5 billion is 1.25% of that, not 0.09%. Even $4.5 billion is $0.25%, not 0.09%.
You seriously underestimate the effect of $20.5 billion on the economy.
The value-added advantage is that this $20.5 billion is directed directly at consumption – in terms of the foreign economies – so it is helping the DEMAND of those countries directly.
Sarek_home,
the RC Coupons are Consumption Coupons, but with one major difference. The Taiwanese Consumption Coupons are measured in terms of their currency/ RC Coupons are fixed in purchasing items.
So an RC Coupon can be used to purchase an XBox that would normally cost $600; a simple $1 Consumption Coupon cannot do that.
So no, your summary is way off the mark.
Rgds,
Arix
Pinkie,
I need to correct you on 1 point.
RCS does not hand out money to locals. It hands out items indirectly. So the RC Coupon that costs $1 for the Government to manufacture allows you to buy a trip to USA on SIA that would usually cost you $1200 Sing Dollar, or pay for your spa treatment that will usually cost $280.
RCS hands out Foreign Currency – foreign money – to Companies so that they can import goods and services from other countries. This is done so that we can give a kick to the foreign economies.
Rgds,
Arix
Holland Frank,
The only way would be to find a way to increase demand.
Rgds,
Arix
This article could have a better title. The author is suggesting an alternative to the Resilience Package and not the Job Credit Scheme. However, I have some disagreements:
1. Boosting the Singapore Currency
This is a double-edged policy. While it may increase our buying power temporarily, it also harms export volume as it makes Singapore goods more expensive to buy. However, with dropping external demand and increasing protectionism abroad, it may not be a bad idea after all.
2. Issuing RC Coupons
It is similar in principle to GST credits. GST credit was initially invented to offset cost for lower tier income groups in view of GST hikes. The Resilience Package includes GST credits for lower tier income groups too although there is no GST hike.
3. Supplementary Price System
I completely disagree with this. Singapore is an open economy. We import all our goods from abroad. Price fixing and price capping is detrimental to market. In fact, a price cap may lead to reduced supply in the market for each class of goods. The alternative would be a black market where the same good would be available at a price way much higher than the original equilibrium price.
4. Releasing Rainbow Credits
Prior to the global financial crisis, Singapore already has a number of financial schemes for companies in various industries. This includes training grant from SPRING, co-investment scheme from EDB and MDA, government-sponsored loan schemes from MTI, and business development schemes from IES.
The Resilience Package actually includes venture capital and private equity for businesses and start-ups. There is also a comprehensive loan package to cover short-term and long-term loans, secured and unsecured loans for Singapore businesses while the Singapore government will accept 80% of the default risk for loans.
5. Foreign Diplomacy
No Singapore scheme will have any effect on the global economy. But Singapore’s good overseas reputation mean there will be some countries imitating our policy. President Obama attempted to introduce the controversial JCS in the USA but it was rejected by the US Congress.
Smallvice,
Thanks for your comments. Here is my reply:
1. Where does the RCS promote “boosting” of the Singapore Currency? What Step 1 states is that the SGD has already appreciated against other currencies because of the weak economic climate. If you have any quarrel, it should be about depreciating the currency, not appreciating it.
2. GST Credits are monetary; RCS is physical. GST deals with finance, RCS deals directly with the real economy.
RCS works by closing off the internal economy to speculation in the Forex Market. The Rainbow Credits in Step 1 are parcelled into the foreign sector, while the local trade works on RCs.
What the RCS provides – which it seems has not been made clear in my article – is an alternative currency system to reduce economic distress caused by Payments Problems in the usual system. (“Payments” refers to macro-economic “Balance of Payments”, not payments for HDB loans or something else microeconomic.)
GST credits reduce the price at payment, but they do not open general affordability. GST is only 7%. If I couldn’t afford a good sold at $100 (before GST), would reducing GST make me able to purchase the good?
RC Coupons literally make a good or service FOC at point-of-purchase. Therefore they are much better stimulants for consumption than GST Credits.
3. I expected to hear such a criticism sooner or later. RCS understands that Singapore is an Open Economy. In fact, it exploits that fact to provide an injection to the Global Economy.
The $4.5 billion Forex stimulus requires a cushion to sustain a FOC currency system like RC Coupons. The purpose of price-fixing is to prevent import costs from spiralling out of the $4.5 billion reach.
The last thing we need is for Somebody to buy 50 villas in France, which would exert a huge strain on the $4.5 billion Euro Section. Or for a chocolate-lover to buy out an entire store of chocolate.
These nightmarish scenarios can occur if the rate of exchange to RC Coupons is not controlled. And then these will exert undue stress on Government Finances.
Note: the pre-crisis list price of goods do not change. These are not subject to price-fixing. The Price-Fixing is solely restricted to the RC Coupons.
And no way does the RCS support black-markets. What Price-Fixing here tries to prevent is the artificial under-pricing of goods.
4. The problem with all the MTI’s (and its Stat Boards’) is that they focus on investment. This is a crisis originating from Consumption, not investment, so an investment-led set of incentives will not aid recovery.
Entrepreneurship grants are useless when Business Confidence is as low as it is now. If I can’t be assured that I can sell my products, what is the point of getting $5 million to start a business?
The loan package will help a bit, but the problem is that the economy has lost its way of charting risk, so essentially there is no more confidence that anything is ‘secured’. Loans can only be ‘secured’ at any level if Consumer Appetite returns to the market. If demand keeps declining, no amount of risk guarantee will help banks, and eventually, it might even become a lame-duck policy.
The RCS is directly intended to trigger Consumption, which solves the root problem of the Crisis. And it triggers real consumption, which increases people’s standards of living overall and gives them better asset ratings when the economy finally recovers.
It is not Financial Consumption, whose real value diminishes as more and more Companies go out of business and currencies deflate. The problem with TW’s consumption coupons is that they don’t solve the problem that people are buying less and less with the same amount of money. It is Real Consumption, in terms of physical quantities of goods and services that do not change regardless of changes in monetary value of these products.
The Rainbow Credits provide a value-added boost to sales, that is intended to stimulate imports to revive international exports.
5. That’s an additional bonus. And RCS will be easier to sell to Unions than JCS, because one can include a provision of re-directing a portion of Rainbow Credits to wage and salary payments.
Rgds,
Arix
A few netizens have writtened about possible abuses that will arise from the JCS such as phantom employees, JCS going to fatten the top management people etc.
There were also claims that there are citizens with cpf contributions but not working(employed) and entitled to handouts from various schemes etc.
ARE THE ABOVE ABUSES TAKENED CARE OF??
patriot
Kudos to Arix.
I wonder is there a solid plan to take care of phantom companies, as said by patriot, and other possible abuses to take advantage of JCS?
Any plan can be suggested. But is it a complete plan which includes how it should be executed and address all the possible abuses?
I would like to assume there is being a TRUSTing kinda citizen. Then, can the people see this plan?
No need checks and balances la. The government should trust the people not to abuse the JCS mah. No?
aiyoyo
not sure if sg go back the type of lifestyle in the 80s?
simple & not so pressure oso
for now, maybe just to make things cheaper/affordable, then ok la for commoners..
aiyoyo
patriot & S Ramesh,
I don’t support the JCS because I see it as likely to be ineffective.
As for RCS, RC Coupons are aimed EQUALLY at everybody in Singapore, whether you are a cleaner or a CEO, you get 100 Coupons. Even if you are unemployed, you get 100 Coupons, so there is no fattening of anybody’s pay packets.
Plus RC Coupons’ redemption is fully regulated by the government, so the Government can force equal distribution of portions of redeemed cash or un-redeemed Coupons as Wage Top-Ups.
The JCS affects investment, that is why there is an issue with phantom employees; the RCS subsidizes Consumption, so it has nothing to do with employers and employees, only customers and businesses.
RCS has no effect – positive or negative – on CPF unless people want to save RC Coupons. CPF continues as normal on SGD payments.
Rgds,
Arix
14) Patriot
The suggestions of abuse from Phantom Employee is pretty remote in my opinion. The so-called Phantom employee has to contribute CPF (20% of pay) for 3 months and the company have to contribute Employer CPF (I think 16.5% of pay) for 3 months. Then the company gets back 12%X3….deficit leh.
19) Lightning Strikes Again on February 7th, 2009 6.39 pm
14) Patriot
“The suggestions of abuse from Phantom Employee is pretty remote in my opinion.”
==> That is Qualitative comment. This claim needs to be substantiated Quantitatively.
“The so-called Phantom employee has to contribute CPF (20% of pay) for 3 months and the company have to contribute Employer CPF (I think 16.5% of pay) for 3 months. Then the company gets back 12%X3….deficit leh.”
==> ‘They’ say its not easy (which means not impossible) to find out which companies are in trouble, I feel worried and share the same concern that this system can be abused.
I believe even a company which just opened for business i.e. started yesterday, I believe would qualify for JC. Someone scream to me if my assumption is wrong.
You are correct in a way. But! when people wants to abuse, I feel that it is still possible! How so? “Phantom” means fake. To further elaborate, it means even if you pay $2500 to an employee just hired, this guy could ‘parkat’ with the ‘boss’. Should elaborate even more? I feel criminal already :p …..simply put , left pocket in right pocket out and back into left pocket.
Just a thought on how phantom schemes can work.
Someone point to me where i am not correct.
The best stimulus is no stimulus. Govt budgets just transfer money from left to right. Let the ppl decide how they want to use their money.
20) Dowager ,
What #19 Lightning Strikes Again
means is based on assumption that all citizens must be paid CPF as employee of companies be it a Pte Ltd, sole proprietary, LLC etc.
What I am not sure if does this apply to freelance or part-time workers?
21) cy on February 7th, 2009 7.54 pm
I wonder which organization will get the most JC all add together eg. ABC Holdings has 5 companies. The boss being the same guy – he has a share in all these companies.
I always wondering wan. I no no wan.
Selamat malam!
Hi Lightning strikes again;
phantom employee is not something I wanted to link to JCS.
While I was working few back, I happened to hear others talking about phantom employee which made me wondered what phantom employee was all about. Started to find out but to no avail and myself unable to understand the logic, after talking with friends, there seemed some possibilities for its’ existence.
My friends and I can imagined that phantom EMPLOYERS(those contributing cpf for the phantom employees) could probably deduct the phantom salaries and the cpf contributions(actually) made to their phantom employees from their annual company income taxes. And if the phantom employees are relatives and friends, it makes more sense as Singapore has adopted a policy that entitle employees who stayed employed for a year to ‘handouts’. We did no further search about the matter after agreeing that it is possible for employers/employees to gain on balance.
When it comes to link JCS to phantom employees, it is all the more profitable to employers already with phantom employees as they will be entitle to JCS without having to do anything more. It is a very possible manoeuvre as far as I can reason, especially if the employees are family members because I think there is more to gain for a small salary with little administration for the phantom employer(by virtue of having phantom employee).
However, I would like to say to You that I have not know of any phantom employee myself though I believe the possibility is very high. Do hope that others who have information can share with us here.
patriot
Just a question :
Does this JCS apply to all the services and admin arms of da Defence ?
yes / no?
thanks. :)
Ramesh (25),
I think that the answer is no.
Create more jobs For example..half the class size and employ more teachers..This should improve quality of education as well.
Though Job Credit has good intention to help company saved Jobs for Singaporean rather than Foreigner.
But who need the money most? Those retrenched workers that are sole beader of their family. The Spur program ask them to spend on subsided course with no job guarantee and not sure when is the Return of Investment to pay their bill.
This $300 should be in CPF of those retrenched worker in need money as a form of loan to pay their monthly bill to hdb, pub, singtel, iras etc etc.
If you put inside pocket of employer what will they do. Have we had not learn lesson from Lehman brothers CEO and formal DBS CEO. Take 2007 bonus and said bye bye or declare Chpt 11.
Why PAP hasn’t used their brain recently!