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Budget Speech 2009 - Sylvia Lim
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.
Budget Speech 2009 - Sylvia Lim
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.
