Written by Ng E-Jay
26 Jan 2009
A day after Finance Minister Tharman Shanmugaratnam delivered the 2009 Budget Speech in Parliament, the mainstream press was all over the shop heaping praise on the “bold”, “generous” and “decisive” budget that “scores on superlatives”.
The Finance Minister told Parliament that Budget 2009 will deliver a Resilience Package totalling an unprecedented $20.5 billion aimed at helping Singaporeans keep their jobs and developing infrastructure and capabilities for “Singapore’s next phase of growth”.
A closer examination of the budget reveals that it is very business-centric.
The Jobs Credit Scheme, in which every non-Government employer is provided with a cash grant amounting to 12% of the first $2,500 of the monthly wages of each Singaporean or PR employee, benefits businesses directly because it places cash in the hands of employers rather than the employees. It is unclear whether such a measure will be effective in encouraging employers to retain workers as companies, operating under the pressure of an unprecedented downturn and potentially acute recession, might be forced to downscale their operations, and could still choose to retrench to save costs whilst benefiting from the scheme with its existing pool of workers.
The National Solidarity Party (NSP) told a rally at Speaker’s Corner on Friday 23 Jan that the Jobs Credit Scheme may be “subject to abuses” by companies and would not benefit workers directly. It suggested that the cash grant be credited directly into employees’ Central Provident Fund (CPF) accounts and considered as part of the employer’s contribution to CPF.
As larger companies tend to have more employees, it is clear that the Jobs Credit Scheme would end up benefiting big businesses the most. Also, with the continued entrenchment of GLCs in almost every major aspect of the economy, the Jobs Credit Scheme will amount to using taxpayer dollars to help Temasek-linked companies stay afloat. Big Brother is about to gain a bit more muscle.
A sum of $5.8 billion dollars was allocated to the Special Risk-Sharing Initiative (SRI) scheme to encourage bank lending. It is interesting to note that under the terms of the new Bridging Loan Scheme, the previous version of which was most sought after by SMEs, not only is the loan quantum raised to $5 million from the existing $500,000 and the Government’s share of the risk raised to 80% from the existing 50%, the scheme has also been extended to include foreign SMEs, defined as corporates with less than 30% local shareholding and a maximum of $15 million worth of fixed asset investment. In other words, foreign investors now can benefit from this scheme as well.
Is it wise to use taxpayer’s dollars to fund schemes in which foreign investors benefit? One may argue that this would encourage foreigners to invest more in Singapore and in so doing, create more jobs and open new markets here. However in this economic climate, would this necessarily translate into more jobs for Singapore citizens? That remains to be seen.
The sum of $5.8 billion spent on the Risk-Sharing Initiative is more than double the $2.6 billion allocated to help households directly. Will the Risk-Sharing Initiative really translate into more jobs for Singaporeans, or will it be merely used to bail out failing companies?
The Government will extend a 30 per cent rebate on road tax for commercial vehicles and taxis — a move that is expected to save transport companies and fleet operators about $33 million. The one-year tax relief, which takes effect from July 1, extends to public buses operated by SBS Transit and SMRT Corp. In particular, taxi operators are expected to receive at least $13 million in tax reliefs through the 30 per cent rebate on road tax for cabs as well as a waiver on the diesel tax for unhired cabs.
While the Government has officially urged taxi operators to pass on the savings arising from road tax rebates to cab drivers, there is no actual requirement forcing them to do so, although Trans-Cab, ComfortDelgro, Smart Taxis and Premier Taxis have publicly stated that they would.
It is important to note that the waiver on the diesel tax for unhired cabs will only benefit operators and not cab drivers, as Cabby Tony Pang pointed out (Straits Times, “Taxi operators to get at least $13m in tax reliefs”, 23 Jan 09). Why not waive the diesel tax altogether?
There is also nothing to hold back transport operators such as school bus companies from raising fares further as costs such as insurance premiums are still on the rise despite the downturn.
In order to lighten the tax burden of businesses in the coming year, the Government will provide a 40% property tax rebate for industrial and commercial properties for 2009. The Government strongly urges landlords to pass on the benefits of this rebate to their tenants.
However, SMEs are suffering under the crushing burden of office rentals which still remain very elevated after the run-up in the past two years. Exorbitant office rentals constitute one of the major overheads of SMEs and is one of the primary reasons why the Singapore economy has become uncompetitive. The Government should enact stronger measures to pressure landlords to reduce their rents in the face of the severe economic downturn. It is only fair that rents that go up in boom times should come down when storm clouds gather. The current situation benefits landlords disproportionately whilst leaving tenants squeezed for cash.
As can be seen from the above examples, Budget 2009 is very much business-centric, like most budgets drawn up in the past. The only difference this time is the size and scale of the budget. The Government believes that the benefits given to businesses will trickle down to workers through the saving of jobs.
But would a business-centric budget benefit GLCs and big businesses more than consumers and working class citizens? I suspect the answer is yes.
Our economy is structured in a way that frequently allows a couple of major players in each sector to dominate the scene. The Government is fond of picking winners. It has essentially governed the economy in a top-down fashion, an approach which is increasing outdated and inefficient in this globalized era. An interventionistic approach to economic management interferes with free-market forces and often results in misallocation of capital, as can be most clearly seen in Singapore’s biotech space. In addition, the continued entrenchment of GLCs in most parts of the economy has crowded out many small-time players. GLCs render our economy uncompetitive because they are government-sponsored monopolies often run by bureaucrats with limited business sense.
Unfortunately, Budget 2009 is tailored to benefit these companies the most. The Resilience Package will make Big Brother even more resilient.
Budget 2009 reinforces the top-down, interventionistic approach to economic management that so far has been inadequate in helping Singapore cope with the new challenges of the 21st Century. Despite all the economic restructuring that has been taking place, Singapore was still the first country in ASEAN to slip into recession last year. The entire economy and the Government’s hand in it needs a serious overhaul. Budget 2009 only entrenches the status quo.
The Government’s investment in infrastructure, healthcare and education is of long-term value to the nation. But we also need independent and effective labour unions and a strong political economy to help translate this into a narrowing income gap, and rising living standards for all and not just a few.
Does Budget 2009 offer enough help to consumers and working class citizens? To be sure, the Government will enact a slew of measures aimed at directly helping households cope during the downturn, such as doubling the GST Credits that households will receive in 2009, providing an additional one month of S&CC rebates for families living in one to three-room HDB flats, providing eligible households in public rental flats an additional one month of rental rebate, and giving a personal income tax rebate of 20% for tax residents for Year of Assessment 2009, and providing a 40% property tax rebate for owner-occupied residential properties in 2009. But given that all these measure total a mere $2.6 billion out of a whopping $20.5 billion Resilience Package, surely more can be done to help households directly.
The Finance Minister has touted that the amount of rebates given to lower income households will exceed the amount that would have been saved by these households if instead of the rebates, the Government had merely reduced the GST by two percentage points.
Such a statement paints a misleading picture, because a significant part of the budget rebates goes into the Post-Secondary Education Account (PSEA) and Medisave Account, and hence are not available for day-to-day usage.
In other words, households are not given full discretion as to how to allocate or spend their budget rebates. The Government is dictating how much should go to what purpose. Lower income households also spend a larger percentage of their take-home income on basic necessities like food. It is therefore perfectly reasonable for the Government to eliminate GST on essential items rather than continuing to tax the poor with the ostensible reason of helping them.
Budget 2009 also does not provide any unemployment benefits for workers who have been retrenched apart from offering them a 24-month instalment plan on income tax payments.
Given that this is likely to be a very sharp recession, or even a soft depression, the lack of any substantial unemployment benefits for retrenched workers is very surprising.
At the NSP rally last Friday, Mr Steve Chia proposed giving the unemployed retrenchment benefits for up to six months, with the benefits tagged at half of their last-drawn salary and capped at $1,500.
NSP also said that the $30 increase per month in Public Assistance for needy single-person households is “so miserly, that the poor recipient will have difficulties wondering whether to use it for salt or sugar”. (Straits Times, “Opposition party: Not enough for needy”, 24 Jan 09)
The Government’s operating revenue for FY2008 is $40.5 billion and that for FY2009 is estimated at $33.43 billion. However, this does not include all the revenue obtained from land sales, which is estimated at $8 billion to $10 billion. When the Government sells land on short leases, the proceeds are treated as operating revenues. But for longer leases, the proceeds are placed into the reserves and not accounted for in the budget statement.
If the Government had opted to use even a fraction of the proceeds from land sales for the current budget, it need not go to the President for approval for a draw on past reserves to fund Budget 2009.
Besides land sales, how much more income is not reported as operating revenue but is siphoned off into the reserves without passing through public scrutiny?
It is these kinds of questions that we should ask before buying into the praise heaped by the mainstream media on Budget 2009.
Issues like accountability and transparency are long-term concerns that need to be addressed, and they should not be overlooked amidst the euphoria over a budget that is touted to “score on superlatives” but which does not really offer anything superlative directly to the average joe.