How close are we to depleting our current reserves? Is the drawdown on past reserves needed because the government has lost money in its investment of current reserves?
Sir,
To the average Singaporean, $20.5b is a sum out of this world. Even with that, economists and the government are agreed that this will not take us out of the recession but is aimed at minimising pain and saving jobs.
That is the interesting part. How effective will the $20.5b be in minimising pain and saving jobs?
Jobs – Saved or Lost?
We all hope to save jobs. Whether jobs will be saved, and how many, remains to be seen. But what we know for sure is that jobs will inevitably be lost. The Weekend Business Times (Jan 31 – Feb 1) cover headline was “Business braces for 6 months of deepening gloom”, quoting government data from the Department of Statistics and the EDB (Economic Development Board) across a broad range of industries from retail to hospitality and manufacturing. The next page was a story entitled: “Singapore’s job market shrinks” stating that as at Dec, the number of Singapore residents who were jobless stood at 73,100, which was a 58% jump year-on-year. Looking ahead, by all accounts, the unemployment situation is expected to worsen for the first half of the year.
How is the government planning to deal with the ranks of unemployed which will grow in the coming months?
Call for a Jobseekers’ Allowance
The average Singaporean knows no one owes them a living. He or she treasures the self-respect which comes with being able to provide for the family, to strive for a better life. To this day, I still meet low wage earners who refuse to accept tips from customers.
Singaporeans are now caught in the global slump. Many have been or will be displaced from their jobs not of their own doing, not out of laziness, but due to factors beyond their control.
The consequences of being unemployed are not just economic but social. Unemployment has long been associated with higher crime rates, suicide, alcoholism, child abuse and family breakdown. More family quarrels and marriage breakdown are likely. There may also be inter-generational effects such as not being able to afford children’s education, which will perpetuate the family sinking further into poverty. I have myself seen young people asked by desperate parents to stop studying to work to support the family. This will increase the income divide in our society. If we believe the family is the building block of society, then this will weaken our society as a whole. As a nation, we should all be concerned to avoid this.
How does this Budget respond to these risks? Yes, the ideal is to get people back to work, but what if they cannot resume work immediately?
One only possible hint of any help for the unemployed comes from SPUR (Skills Programme for Upgrading and Resilience), where an unemployed person can enrol for training and apply for a training allowance of some sort. However, no sum or formula is mentioned on the SPUR website. There is a course fee subsidy, which I assume means they would still need to pay something for the course. Courses will end before the downturn ends. Some unemployed may also fall outside the SPUR net.
The ruling party’s aversion to anything akin to unemployment benefits is well-known. However, the problem of having unemployed will remain. Globalisation will continue to test us as jobs are off-shored to cheaper locations. Even if jobs remained here, Singaporeans may lose jobs to foreign workers. While it is right that these unemployed Singaporeans must be upskilled wherever possible, full employment at the national level is unlikely. The government will have to provide a policy response and safety net to these citizens in the medium to long term.
As for now, in these extraordinary times, a lifeline should be thrown to the unemployed besides the offer of training. My view is that the government should provide at least a temporary financial assistance programme for jobseekers during this period of global crisis. This can be called a Jobseekers’ Allowance. Since the outlook is bleak in the next 6 months, this scheme could be instituted for 6 months and thereafter extended if the downturn persists. Such temporary assistance could be in the form of a monthly allowance of half the person’s previous salary, subject to a strict cap (say $500 per month, pegged at subsistence plus). To ensure that such assistance is targeted only to those who need it, a means test should be designed to weed out those with significant savings, assets or family income in the same household. To reinforce the work ethic, the applicant will qualify only if he is actively looking for work and has not unreasonably rejected job offers.
I believe there is scope for the government to seriously examine such a scheme clearly targeted at those unemployed during this period. In this most trying of times, this will be an important relief to our jobseekers while they continue their job search.
Pain – GST
I next move on to the topic of minimising pain.
The government has given rebates on various taxes which should be of some help to businesses. However, one of the main causes of pain is still there – GST at 7%.
In the run-up to the Budget statement, PM Lee had already made clear that a GST cut was not on the cards. The reason given was that since Singapore was a highly open economy, any stimulation of consumption demand would not be very effective due to high import leakages i.e. we consume imported goods and services, and the benefits of consumption will go to foreign suppliers.
However, it has been pointed out by economists like NUS’ Prof Basant Kapur (ST 26/1/09) that to ignore the demand side of the Budget would not be advisable. A few reasons were cited.
First, the Singapore Input-Output Tables 2000 (the latest available) showed that the import content of consumption expenditure was only about 34% whereas the domestic value-added content was about 54%. Secondly, consumption domestic demand was particularly important to the SMEs which account for 55% of total employment, and to the wholesale, retail and commerce services sectors. Third, targeted GST credits at the less well-off were unlikely to provide as broad-based a stimulus to consumption as an across-the-board 2% GST reduction.
In yesterday’s Straits Times Forum Page, Prof Kapur further notes that GST credits are targeted at only Singapore citizens above 21. Therefore everyone else – Singaporeans below 21, Permanent Residents, foreign labour and tourists do not benefit from the GST Credits. If the GST rate was reduced, everyone would benefit and presumably be more willing to spend. This will provide a more broad-based stimulus to the economy.
The effect of GST on the cost of living is significant and real. When the 2% hike in 2007 kicked in, the Consumer Price Index rose by about 1.5% rise. Reducing the GST by 2% would thus lower the overall cost of living for everyone.
Is just focusing on a supply-side Budget wise? Looking at the growth forecasts, even after factoring the stimulus accorded by the Budget, the economic growth figures for 2009 are expected at around (-) 2-5 % GDP contraction (ST 24/1/09). This seems to support the argument that the government should have paid attention to the demand side. It is still not too late for the government to cut the GST rate by 2%.
Any such cut will cost the government about $1.8b, within the government’s means. In any case, the revenue loss will probably be less if people start consuming more as expected. If needed, the government could reduce additional GST credits given to those who are better off.
Use of Past Reserves
Finally, the government is asking for Parliament’s approval to use past reserves without information on how much we have in current reserves. We are told that this Package does not need us to dig into the past reserves, yet we are doing it because “it gives us the resources that we need to deal decisively with the current economic crisis and also ensures that we have all the resources we need to respond to the considerable uncertainties that lie ahead. It will allow us full flexibility to respond as the situation requires, and to pre-empt the severe consequences that this crisis could have for our economy and our society”.
With due respect to the Minister, that does not tell us very much. How close are we to depleting our current reserves? If things go well, we may not need to have drawn on past reserves at all. Why can’t we go to the President only when we need to draw? Is the approval process very cumbersome? Is the drawdown on past reserves needed because the government has lost money in its investment of current reserves? In my view, some answers are badly needed before a considered decision can be made.
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“Did our very trusted minister say that our system is based on trust.?”
Of course it is based on trust, to be more specifically, BLIND TRUST.
Does anyone know how much reserves we have to begin with ?
Now its anyones guess, also why is it Singapore is not able to have welfare if people lost their jobs ? It has nothing to do with crutch mentality or whatever its plain and simple that if the govt is not able to provide enough jobs with a minimum wage that we will have this life long problem of the economy is doing well but there is a HUGE income gap between the people
GINI index ?? Why has these not been addressed, why does retraining help when you have to spend money ? Can retraining be FREE for Singapore who lost their jobs ? Is this not possible ?? I am sure this will give the GOVT the real stats that it had been looking for :)
Cheers
DP you stil remember Micropolis that loss was i think usd 500 million. That is really peanuts like a campfire only compare to now a forest fire
Now It going to be really long long term for
ML now BoA Usd5.9 Billion down over 78%,
ABC over Aus 400 Million plus exchange loss over 25%,
Barclay Euro3.5 Billion + Gbp4.5 Billion down over 66% plus exchange loss over 35% on Gbp
If a govt does not trust its own people, then it is only right that its people do not trust that govt.
7/2/09
Sylvia’s speech is satisfactory and her call for a Jobseek’s Allowance is indirectly advocating for a Welfare State ie handouts and this is bad for Modern Singapore must not be turned into a Welfare State. I prefer the Government allocates S$1-2Billion via the Banks in Singapore as Clean and Unsecured loans easily available for Singaporeans only ie unemployed graduates and those who have lost their jobs, to apply and use it to kick start their businesses and this inturn will revitalise our economy, besides putting these people back on their own two feet.
As for the GST, this is non issue for me. We can refrain from buying less good and services and if possible, do without them. GST must be there always as our taxes are very low enough.
As for using Past of Reserve, the PAP government is the government of the day and hold them fully responsible especailly its Finance Minister and should this fail to stimulate our economy and put it back on its own two feet, then come the next General Election, we then use our votes and vote in good opposition candidates like Sylvia Lim and her gang (credible enough and they have my support).
Regards
Andrew Chuah
Whether what the govt does is able to save jobs is a BIG QUESTION MARK. But the papers and all the official propanganda is that this is one big innovative budget that will guarantee to save job. You see PM Lee going to Glaxo to give them new year greetings, one week later, they are going to sack a few thousands people. The evidence speaks for themselves.
Now the going gets tough, you see all the big shots starting to speed up “succession planning”, e.g Ho Ching, so that somebody will take the blame and heat when the big crisis arrives.
To those who keep yearning and saying that Opposition Politicians will be voted into Parliament and will be able to perform, I say I wish the same as You.
BUT,
to imply that PAP will lose the majority and be ‘weaken’ to be less totalitarian as it is today, will be wishful thinking. Singaporean will be facing structural political developments in PAP itself almost in the immediate future. Nature will not keep Lee Kuan Yew for long and his son, the Incumbent PM, may not be able to handle the country without him(LKY). The Prime Ministers’ Wife, who has just step down from Temasek may have to face more criticisms after stepping down than if she remains in Temasek, this will add to the domestic developments in the Lee Family itself. Here, it is clear that the Lee Familys’ hold and sway on PAP the Party is consequential. It is quite similar to Chiam See Tong not having a successor. Who in PAP will succeed the PM, if due to lack of LK Yews’ guidance, Lee Hsien Loong is unable to handle the country? It appears to me, PAP does not have any.
Pardon this layman for my audacity, I believe we will have a double whammy, the financial meltdown has exposed the weaknesses of our leaders and the PAP itself unfortunately has its’ own destiny to content with.
However,
I think Singaporeans as a whole will be able to make it through all the difficulties. We are after all a minute drop in a tiny dot and the World has no difficulty accommodating a small group of hardworking and servile people. We can live as towkays as we can live as maids and coolies just like our forefathers and may even succeed liked them again. Many by the way are already doing well overseas. The Cycle will come and go and we are just parts of it.
Leadership for the Country as it stands is pretty fuzzy and fuzzy logic is also a kind of logic and out of the fuzziness, some intelligence will be born.
patriot
Like to add here that as a citizen for almost six decades, I feel that Lee Kuan Yew has built PAP all for himself. He is the Comptroller that has never let go of his control. Hence, once he loses his capacity(lucidity), PAP will be like a rudderLESS vessel and its’ crews will likely have problems amongst themselves.
patriot
we are in trouble, the only thing that can help us is tax cuts and job creation.