Tuesday, February 3, 2009

Expect a debate like no other

Feb 3, 2009

Issues like saving jobs, fiscal prudence, likely to top Budget discussion

By Chua Lee Hoong

STARTING today, Parliament will be devoting nine days to debating the Budget that was announced by Finance Minister Tharman Shanmugaratnam on Jan 22.

It will be nine days worth observing for what they tell you about Singapore.

# One: Will they reveal a closing of the fiscal divide?

The unprecedented $4.9 billion dip into past financial reserves will no doubt be among the key issues addressed in Parliament, and rightly so.

This deserves closer scrutiny because it bears on a central tenet of Singapore's governance: fiscal prudence.

The Government has for decades resisted calls by MPs - from both sides of the party divide - to dip into the piggy bank, whether for social assistance to the poor or more temporary economic relief.

The motif of argument often showed a rather peevish clamour on the one side, and an unyielding Government on the other. Neither side had much understanding of or sympathy for the other. To the Government, being prudent was a cardinal virtue and key to Singapore's survival. To the other side, that prudence was tantamount to heartless parsimony.

Will things change now?

The Government has been at pains to explain why it made its landmark decision to dip into the reserves. It was to fund extraordinary programmes required for extraordinary times, it said, and these programmes would not be permanent. The subtext of its argument: Its dip into reserves was not that marked a departure from the norm.

On the other side, however, you hear mangled arguments to the effect that since the sacred cow of not dipping into reserves has been slaughtered, the way is now open to treat the reserves as a goose laying golden eggs.

The Government is obviously mindful of these lines of thought. Over the weekend, Senior Minister Goh Chok Tong outlined the three 'nos' about using reserves - 'no' to supporting social assistance programmes, 'no' to funding permanent programmes such as ComCare and Workfare Income Supplement, and 'no' to drawing reserves except under 'dire circumstances'.

In the days ahead, what attitudes MPs display and what questions they ask as they discuss this in Parliament will tell you a lot about the Singapore of today.

It is possible that what is revealed is a Singapore that has achieved that happy state of affairs - a national consensus on the use of reserves.

It is however also possible that many remain to be persuaded, and will call for the reserves to be used for more general budgetary functions.

MPs are both reflectors and multipliers of opinion. They will have a tough call deciding how they couch their arguments about the use of reserves.

# Two: Will the nine days reveal a closing of the worker-employer divide?

Apart from the $4.9 billion dip into the reserves, the other extraordinary measure unveiled in the Jan 22 Budget was the $4.5 billion Jobs Credit scheme. This also deserves close scrutiny by Parliament.

Under this scheme, the Government pays 12 per cent of the first $2,500 of the wages of all Singaporean workers, including permanent residents.

The objective is to encourage employers to retain these workers despite the economic slowdown.

What makes the scheme easy to implement is that Singapore has in place the Central Provident Fund. The government grants are paid directly into the CPF accounts of workers.

The CPF is the superstructure of Singapore's social security system, and it is apt that a scheme which is in essence a wage support should also rely on the CPF.

However, detractors consider the Jobs Credit scheme too biased in favour of employers. The Government foots part of companies' wage bills so that employers have to foot less.

Mr Ngiam Tong Dow, a retired Ministry of Finance permanent secretary, even argues that the Jobs Credit scheme is a 'strategic mistake'.

The Government should be cutting wage costs more directly by cutting employers' CPF contribution rates, he says; the Jobs Credit scheme is a 'distraction to the employer who has to restructure his business and reorganise his labour force'.

Some also consider it a big gamble. There is no guarantee that it will save many jobs. To employers on the brink, saving 88 per cent by retrenching makes more sense than saving 12 per cent by keeping the worker.

And as one economist pointed out, even assuming it results in 50,000 jobs saved, that would be at a cost of $90,000 per job. Would it not be better to spend that kind of money on helping the retrenched directly?

So questions abound about the efficacy of the Jobs Credit scheme, novel as it is.

The best argument from the Government so far, I think, is that the Jobs Credit scheme saves workers from the real wage cut that would result if CPF contribution rates were cut instead.

As Minister Lim Swee Say said, such a cut would hurt workers who are paying housing loans and saving for retirement.

The beneficiaries of Jobs Credit, therefore, are not just those whose jobs are saved, but all other workers who get to keep their monthly CPF contributions at current levels.

There is also a macro-economic aspect to the Jobs Credit scheme that is not widely appreciated. This is that the $4.9 billion amounts to a fiscal stimulus to the economy, an injection of cash by a wealthy patron (that is, the Government) at a time when most other customers (that is, employers) are tightening their belts.

Both these arguments in favour of Jobs Credit have however not been reiterated much. The doubters, and those who want to see more direct aid measures for workers, continue to have much sway. Will the Budget debate provide an opportunity for the Finance Minister to tilt the balance? We will see.

# Three: Will new MPs make their mark?

Convened on Nov 2, 2006, the current term of Parliament will be crossing its half-way mark in a few months' time. A total of 25 MPs were elected for the first time earlier that year, on May 6. This year's Budget debate will be a testing ground for them, as it occurs against a backdrop of a recession of historic proportions. Will MPs see beyond the municipal concerns, to the bigger issues at stake? Will they provide real and lasting contributions to the national discourse on important policy issues? We will know soon.


No comments: