Economist's view of Sgp Y09 govt budget

In the face of a fast deteriorating US economy and rising unemployment, its effect is already felt in most other major economies, and similarly, Singapore economy is weakening. Singapore employment situation seems weirdly calm at 2.2% unemployment in Sep Y08, though it is expected rise as the months passes. A recent survey conducted by Business Times still indicate a projected Y09 average salary increase of 3.7% and bonus increase of 15.5% for Singapore labour market.

From an economist viewpoint, Singapore government has the following factors for consideration.

1. To minimize unemployment while bracing through the stormy global economy in Y09
2. To upkeep citizens’ affordability index so as to avoid a massive payment seizure of loans (personal housing, cars and other loans), and
3. To upkeep corporate viability to as to maintain the high labour employment and business continuity so as to avoid hurting the Singapore financial system
4. To continually upgrade Singapore competitiveness and to attract more companies to be set up in Singapore
5. To further diversify our economic activities into more markets and multiple sectors, while selecting niche sectors where Singapore can excel in
6. To be prudent in deploying the nation’s reserve, avoiding high risk bets while be bold enough to take advantage of opportunities that will yield strong positive long term results
7. To be watchful of social stability and affordability of the citizens during this difficult period that may last for several years.

In view of the humongous tasks ahead and at times, conflicting goals, the government decided to adopt proactive approach of introducing new fiscal policies and NWC review in Jan 09 instead of the normal budgetary policies period in Mar 09 and NWC review in July.

To achieve the above goals, Singapore government would probably consider the following for the businesses and related impacts.

1. Government to accumulate the finance from a relatively good Y08 through the normal tax revenue (that is, no tax benefits for Y08 earnings/income) so as to allow the government the flexibility and scope of fiscal injection in Y09.
2. To introduce attractive tax incentives for companies to continue their business and even expansion for Y2009, possible tax incentives may be announced; reduce corporate tax to 16% for fiscal year 2010 (or tax on Y09 profits) and to reduce personal income tax brackets further so as to support domestic consumption for Y09. After all, consumption will yield 7% GST revenue to the government. One possible corporate tax rebate policy that should be considered for Y09 may be to allow companies to claim double the new staff salary costs incurred and one and a half on existing staff costs, so as to minimize unemployment and to lower companies’ headcount cost. The government will continue to offer special tax rebates for certain high technology and service sectors which the government would want to encourage. In addition, further support for local entrepreneurship in a form of direct government loan may be put in place.
3. If their effort of making loans through the banks do not significantly improve, Government may revitalise or create new financial agencies to make loans directly companies as banks are still too tight-grip on their business lending even with governmental financing support.
4. At this stage, January Y09, it will be considered too early to cut the percentage of all CPF contribution, though there will be a review as to whether there is a need for a downward adjustment to the CPF contribution in July 09, should the economic worsen significantly. This is to allow home owners to financially prepare for possible change of CPF contributions ahead. Come, July Y09, if need to, the government may cut employers’ CPF contribution and in an even more severe economic condition, employees’ CPF contribution may also be cut. The cut/s depends on the degree of the economic severity.
5. Commercial property and land tax to be lowered, so that JTC and other big commercial property owners can pass on the savings to the companies operating in Singapore.
6. Some fiscal stimuli were announced recently, SPUR, infrastructure works to be brought forward,…etc but Singapore government are lining more projects as the year 2009 progress, to be ready to meet any serious downturn of the economy. One such project like Singapore-World Bank Urban Development training program, and also other like expanding the education sector, health-care sector, bio-medical sector and many other are already in the pipeline and many more to come if need to.
7. It is a bit too premature to stimulate the private housing sector in this January Y09 budget, as it is too early to assess the fallout of global property bubble and the aggressive US economic rescue package, though it may be considered at the later stage.

Though it may not be in the budget, but under separate forum under the MAS, a temporary weakening of the SGD would be helpful in reducing overall operating costs for existing and new companies setting up in Singapore.