STIMULATING THE ECONOMY
By Leslie Fong
AN ECONOMY in recession badly needs a boost from increased public and personal spending, but cautious consumers here are likely to need more than just persuasion to open their wallets.
Government can help. On top of all the other measures it has in mind to help companies and the needy cope with the sharp downturn, it may wish to consider putting cash in the pockets of ordinary Singaporeans as well, or something equivalent to that.
It can do so through tax rebates or through one-off special payments - as it has done before with growth dividends - without compromising its long-standing aversion to straight welfare handouts.
Such payments will, arguably, produce immediate results. A computer store may benefit from official help to send staff for training or learn new skills when business slows down but its first priority must be to keep its head above water. That is possible only if, among other things, people who need, and can afford, to replace their old laptops do not hold back their purchases.
Economists have long advocated stimulating consumption to fight recessions, however counter-intuitive that may seem to prudent Singaporeans whose instinct in difficult times is to save rather than continue spending as per normal.
This was how John Maynard Keynes, one of the most influential economists and thinkers of the 20th century, argued the case in a radio talk on Jan 14, 1931, amid the Great Depression:
'There are today many...who believe that the most useful thing which they and their neighbours can do to mend the situation is to save more than usual...
'Now in certain circumstances, all this would be right but in present circumstances, it is quite wrong. Suppose we were to stop spending our incomes altogether and were to save the lot. Why, everyone would be out of work! And before long we would have no incomes to spend...'
Keynes also called for greater government spending, saying expenditure on infrastructure and other municipal improvement projects - pump-priming the economy as it has come to be called - was better than just handing out welfare payments. 'Is it better that men should stand idle and miserable drawing the dole?' he asked rhetorically.
In Singapore's case, spending on infrastructure and on education will certainly benefit the country in the long run. It would certainly be a good idea to consider re-starting some if not all of the $4.7 billion worth of public projects that have been put on hold since last year.
But it is also important to remember that not all the money earmarked for big projects will go to local companies that need business desperately to keep their staff in employment.
For example, Bombardier, a Berlin- based company, has just been awarded a $570.7 million contract to provide 73 electric trains for the Downtown Line, while Westinghouse Brake and Signal Holdings has been given the $287.5 million contract for the signalling system and platform screen doors. This expenditure would generate some local employment and business but there is bound to be leakage.
Thus in the interim, a more direct shot in the arm for consumers, whether through tax rebates or some other means, is called for - urgently.
The impact on the economy of stimulating local demand will not be insignificant. Official data show that from 1995, personal consumption as a proportion of the domestic economy (GDP minus net exports) ranged between 46 and 63 per cent. It contributed 0.7 per cent of the 3.5 per cent growth in domestic demand for the second quarter of this year, according to the Economic Survey of Singapore published by the Ministry of Trade and Industry.
To put it another way, if every one of the estimated 288,000 people who have a personal monthly income of $5,000 or more - those who, arguably, can afford to spend on life's little pleasures, as Senior Minister Goh Chok Tong put it - were to cut back by $100 each month, local businesses will lose $345.6 million a year.
Stimulating personal spending will benefit two sectors directly: wholesale and retail trade as well as hotels and restaurants. Together they accounted for $43 billion or 18 per cent of Singapore's GDP of $243 billion last year, and employed 407,000 residents.
Tax rebates or one-off special government payments, best staggered over the next 18 months, need not be given to every Singaporean as the really needy are already receiving very substantial help from the Government. Those who earn more than $15,000 a month probably do not need them either.
If such payments were restricted to a target group of middle-class taxpayers whose annual incomes fall within a certain range, they will cost the Government a lot less than the $1.06 billion that the growth dividends for some 2.4 million people cost this year.
To ensure that incentives are not stashed away or spent overseas, they can be in the form of vouchers usable only in Singapore to buy goods and services from registered businesses, which can then redeem them for cash at approved banks.
The writer, a former editor of The Straits Times, is Senior Executive Vice-President (Marketing) of Singapore Press Holdings.
[Most persuasive argument to buy an iPod Touch or iPhone.]