Friday, January 23, 2009

Be grateful for the reserves

Jan 23, 2009

THE recession Budget out yesterday has a projected deficit of $8.7 billion. The current financial year winding down will show a revised, higher deficit of $2.2 billion. Of the new Budget, $4.9 billion will be drawn from the reserves to fund part of countercyclical spending, specifically to keep people employed and to help businesses survive the slump with an array of concessions. Reading between the lines, Finance Minister Tharman Shanmugaratnam's survey of the deepening global dip ('... no assurance 2010 will be better than 2009'), supplementary allocations in the course of the year could become necessary. If any satisfaction can be had from deficit financing, it is that Singapore can afford it because it has ample reserves gathered carefully over a stretch of bountiful years. These now are lean times, the worst in living memory. Singaporeans cannot begin to imagine how much worse off they would be if the Government had to borrow from future generations to pay for consumption, for the most part.

This is why it was prudent to continue making Budget allocations to invest in human capital and productive fixed assets, such as transport networks and learning institutions, so that the nation can make the most of coming growth phases. But for the next year or two, at the least, the Budget focus on saving jobs, facilitating bank lending and reducing fixed costs in business and industry is priority. The Jobs Credit plan that will defray a portion of companies' wage costs is a taxpayer subsidy to business operators. It is a smart way of averting a CPF cut in employers' contributions, which would hurt the entire nation's workers without helping business much. The Treasury has calculated the boon to employers of Jobs Credit payments as equivalent to a 9 percentage point cut in the employer CPF rate. The Government's intent to have as many workers as possible kept in employment is acute; let us hope employers prove worthy of the financial help they are getting. Companies are also having their burden lightened with reductions in state rent and corporate taxes, besides the Government shouldering more of the risk in bank lendings.

This Budget has a strong element of social responsibility to it. For the support given, companies are not to retrench workers without thought and banks are expected to lend to corporates and small businesses more willingly. As for social support for distressed families and even the middle class (via an income tax rebate), this was pretty much well rehearsed, as in previous downturns. Payments are generous. The key to navigating the recession safely is that paid employment does not collapse.

No comments: