Kelvin Teo
President Dr Tony Tan said he would provide a steady hand on the economy during his Presidential campaign.
During the build-up to the Presidential elections, Dr Tony Tan announced the possibility of a resilience package to cope with a potential crisis during a period of economic uncertainty plaqued by the debt crises in US and Europe. Dr Tan’s suggestion of a resilience package could have tipped the support, albeit narrowly into his favour.
After all, in the middle of this uncertain financial period, there is a degree of fear and worry within the population over what the future might hold. Dr Tan’s allusion to “dark clouds” on the horizon, followed by his positioning of being a rallying President and suggestion of a resilience package may have convinced voters to mark a tick beside the “spectacles”, which was his trademark Presidential election symbol. Dr Tan was not alone in using such a strategy; countless numbers of his forebears from other parts of the world have made use of a crisis of national proportion to gain support within their electorate. The fact that his closest rival Dr Tan Cheng Bock remained non-committal and even criticised his approach of suggesting a resilience package, and Mr Tan Jee Say’s too- futuristic looking economic plan may have convinced a segment of voters to vote for him instead.
The term “resilience package” is a broad umbrella term, and hence this necessitates breaking them down into their component parts, but broadly, the package may involve the following – 1) government grants to or/and bailouts of businesses 2) government spending to stimulate aggregate demand, which is defined as the total demand for goods and services produced in the economy over a period of time 3) Handouts to households, especially those that are struggling.
The last time the Singapore government drew on the reserves was to fund the Jobs Credit Scheme. Former President S.R. Nathan gave his approval to the government to draw $4.9 billion, $4.5 billion of which was intended to fund the Jobs Credit Scheme, and the rest went into a Special-Risk sharing initiative which was supposed to help medium-sized companies gain access to credit. During a downturn, declining profits or losses result in companies downsizing on their labour force. Retrenchment exercises are one of the resorts. Hence, the purpose of grants to companies is to provide them with the necessary capital to maintain their operations and keep the current workforce employed. The main goal of such grants is to battle against unemployment and keep the employment rate up.
The Jobs Credit Scheme is an example of a government grant to businesses. Under the scheme, existing businesses were given cash grants based on the Central Provident Fund contributions they made for their employees. This scheme was supposed to encourage companies to keep their staff employed.
On the point of government spending to stimulate aggregate demand, that basically involves the government purchasing goods and services, and firms profiting from this spending will purchase goods and services from other firms, and this goes on, creating a multiplier effect which stimulates economic activity. It will ultimately keep employment up. The concept of government spending stimulating economic activity has its roots in Keynesian economics.
The third mentioned component – handouts doled out to lower income households is basically a mechanism to help them cope with the recession after their working members experience pay cuts or/and unemployment. The handouts have another goal of enabling households to consume, which keep businesses going with their customer base.
Dr Tan dropped certain hints on how his suggested resilience package could be used. He mentioned about coming up with contingency plans to help companies keep jobs. Thus, the possibilities are grants to companies or government spending on goods and services, though it is the former that is more likely to be implemented since Dr Tan argued his case using past the government’s experiences of drawing on reserves, in reference to the Jobs Credit Scheme. He also mentioned about using the Resilience package to help households, which could possibly refer to giving handouts to households who will be hardest hit by the crisis.
However, one interesting question is whether we ever need at all a resilience package to cope with a crisis? During the 1920s, US President Warren Harding had to tackle a severe recession in which unemployment rate rose to 12%. He basically introduced tax cuts and reduced government spending. During a recession, there will be salary cuts and massive unemployment. In combination with the imposition of tax cuts, there will be less returns from taxes, leading to reduced government spending. Harding made the decision to reduce government spending especially in defence, and he pursued the Washington Naval Conference which is aimed at naval disarmament. Harding managed to pull the country out of recession in 6 months.
Tax cuts are a type of countercyclical fiscal tool. Basically, an across the board tax cut allows businesses to break even since they pay less taxes, and allows individuals to have more savings and stimulate consumption. The result of tax cuts (GST, income, corporate, etc) is that there will be diminished tax returns, and that means the government will have a reduced budget. In anticipation of a reduced budget, the government has to be prepared for reduced spending in certain areas, e.g. defense, which Harding pursued through the Naval Conference.
Is President Dr Tony Tan able to emulate President Warren Harding’s approach? No, as dictated by the constitution. His colleagues in Parliament are better suited to impose tax cuts and reduce government spending in certain areas. Research of countries across Asia has indeed shown that tax cuts are actually more superior as compared with government spending in coping with the global crisis.
Hence, it is up to the Parliament to come up with fiscal policies like tax cuts and reduced government spending in certain areas, such as defence, when the crisis hits our shores. Calling on President Dr Tony Tan’s approval to draw on past reserves to create a resilience package to cope with the crisis should not be the first resort. It is a crisis that can be dealt with by policies imposed by the Parliament without the need to draw on past reserves.
interesting.
shows that the govt is just using the reserve to self serve themselves and their rich business colleagues.
Actually, the fundamental questions to be asked is:
how come Taiwan, HK and Skorea which also has huge reserves (take a look at their FX reserves which are easily among the world’s top 10), didn’t need a resilience package.
A resilience package that keeps coming back suggest that the population is not resilient.
What have the pap govt of late done to our people?
No doubt: their destruction of our traditional work ethnic through their mindless ft importation is the source of the problem.
It is silly to think that our govt has been doing its job well.