Why SDP “alternative” budget will not work?
Singapore Democratic Party (SDP) came up with an alternative 5-point budget proposal that they claimed will work better at relieving the recessionary effects on the residents than the recent budget 2009.
The alternative plan has keynesian and socialism written all over it. SDP proposed to spend, spend and spend our way out of the crisis. This already got me off on a bad start.
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The opposition party based its proposal on three principles and I will give my views in italics after each one:
1. The economic help must be direct and tangible for the people, starting from the bottom and progressing upwards instead of the usual help for the top echelons and hoping that the assistance trickles down to the ordinary folk.
I am not a big fan of trickle-down theory but in Singapore’s case, and I have mentioned before, supply-side economics work better than just demand-management economics (or better known as Keynesian economics). Simply because Singapore is a small and open economy. Having a purely deficit-spending budget that help directly ALL residents will be very costly. The multiplier effect of the spending might not be effective and at the end of the day, the reserves are depleted without good results.
2. Financial programmes must proportionally, but not exclusively, benefit the following groups: the retrenched and unemployed, the elderly, and the lower-income groups.
I agree with SDP that the budget needs to benefit the mentioned groups because they are the most-affected groups in this recession. I have recommended a stronger government response to the retrenched in my previous post.
3. The measures must put money in the pockets of the people
Transfer payments are a very costly programme as can be seen by the vote-buying GST credits scheme and ERS (Economic Restructuring Scheme) by the government. High import leakages render these transfer payment much less effective.
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Keeping these three principles in mind, SDP came up with the following five parts:
1. Suspend the GST
They recommended suspending the GST for at least two years to help workers, lower income groups and businesses to sustain themselves. I think this measure is too drastic. The GST was introduced to shift Singapore’s reliance on direct tax to indirect tax, so that income tax rate can be kept low. Suspending GST means that a significant amount of the tax revenue (S$3.465 billion based on Jul 2007-Jan 2008) will be removed from the government’s coffers. This means that the government has to look at other taxes for revenue, i.e. increasing direct tax which will decrease disposable income and competitiveness.
Cutting the GST by a couple of percentage points (e.g. -2%) will be a more stable option. Suspending GST is a reckless and thoughtless recommendation.
2. Reduce land transport costs
SDP recommended capping ERP charges at S$1 per entry and activated only during peak hours. They also ask for a 30% reduction in bus and MRT fares. Personally, I do not think that ERP help to reduce congestion at a significant level. Assuming it does help to reduce congestion and maintain a certain minimum speed on the affected roads. Implementing the recommended ERP changes will increase congestion and might potentially increase business costs and time.
The 30% reduction in public transport fares is a ridiculous recommendation. I hope SDP didn’t pluck the number out from thin air. A 5% reduction is still rather significant but at least plausible. I’m assuming that SDP is asking the government to pay for the 30% subsidy instead of getting the transport companies to cut revenue. A more viable choice will be to provide substantial travel concession to the vulnerable groups such as the retrenched, low-income and elderly. However qualifying the eligibility and monitoring the usage (to prevent misuse) will be costly and cumbersome.
3. Institute unemployment entitlement
SDP recommended giving money to retrenched breadwinner for essential items. Unemployment benefits are a double-edge sword and personally I do not recommend using it. A better way will be giving NTUC vouchers to the retrenched person for a fixed period of time (3 to 6 months) and negotiating delayed PUB and mortgage payment if necessary.
4. Give out spending vouchers
This is a better recommendation. I also recommended it as a form of temporary unemployment benefit. However, it will still be a costly expenditure and not a useful stimulus for the economy because of high import leakages. This will largely be a social benefit.
5. Slash ministers’ pay
I’m not sure about the relevancy of this recommendation. Government administration costs are the smallest in the balanced budget approach taken. There are four main categories that the budget is spent on. The largest is social development, followed by security and external relations, and third, economic development. Last is of course, government administration. I agree that the top civil servant is paid too much, but this has no relevancy to the proposed budget of Singapore.
This recommendation takes the cake for even being here.
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After presenting the five points, SDP said:
The above measures will address the immediate and urgent needs of Singaporeans. They are not some help promised at some later time that may or may not come.
Indeed, the recommendations (with the exception of no. 5) will address the immediate needs of Singaporeans in tiding them through this year because they are putting money into their hands. But these recommendations come at a high cost to Singapore. If implemented, they might laden future generation with our debts (somebody has to pay the bill right?), though the Ricardian equivalence theory may suggest otherwise.
Moreover, keynesian deficit-spending will not work effectively in Singapore’s situation because of the nature of our economy – small and open (Gosh, I sound like a broken record!). So the economy might not recover as expected of a demand stimulant and we are left with a smaller national reserve.
All in all, I believe the SDP should brush up on its economics knowledge or have an economic adviser before coming up with such a shabby “alternative” budget proposal.
haha yeah strange suggestions, the ERP reduction would make it practically redundant.
Regarding pt 1 though perhaps instead of suppending the GST, the GOV could consider waving GST on certain essentials? rice.etc.
Hey I should have read your blog before I wrote my opinion. We share similar views haha, or is it because their proposal is really crass?
“Moreover, keynesian deficit-spending will not work effectively in Singapore’s situation because of the nature of our economy – small and open (Gosh, I sound like a broken record!)”
Yeah me too lol.
“All in all, I believe the SDP should brush up on its economics knowledge or have an economic adviser before coming up with such a shabby “alternative” budget proposal”
Hmm maybe you can freelance for them..?
Mike: MP Mike Palmer (haha, same namesake) just suggested that; waiving GST on essential goods and cutting GST for others (http://www.straitstimes.com/Breaking%2BNews/Singapore/Story/STIStory_334120.html). The ERP part is also a terrible recommendation that has little or no impact.
Al: I read your interview post and saw the SDP website, hence I wrote it last night =)
Hmm maybe you can freelance for them..?
No thanks, don’t want to be blacklist by gahmen.
What about a better use for the reserves? It is about time to introduce a systematic change in Singapore’s labour policies. Every time there is a crisis, Singaporeans always talked about withdrawing their CPFs to meet difficult times. I suggest an alternative which would be a far better use of our fabled reserves – Unemployment Insurance Act. Here’s my proposal:
01. Use S$10B from our reserves as the Seed Fund.
02. It functions similarly to a Group Insurance Policy
03. Mandatory insurance for all Singaporeans and PR
04. Mandatory for permanent and contract workers
05. Employers contribution equivalent 3% of the employees’ wage
06. Employee’s contribution equivalent to 5% of the employee’s wage
07. Foreign Workers’ Levies goes to this Insurance Fund
08. Provides for a Fixed Monthly Payout Unemployment Benefit
09. Payout is uniform regardless of person’s background
10. Period of Payout is limited up to 6 months per calendar year.
Your country needs you.
Having said that, I think u underestimate the effect of leadership. Our top leaders can afford a symbolic pay of $1 for this year. This would help unite the nation in these difficult times.
Also, some leakage (given the high rental labour cost is smaller than u think) the must be tolerated if it can help the local population survive. Afterall, this crisis too shall pass.
smallvice: I’m thinking of an unemployment insurance coverage initiated by the government too. Still working on it.
I have one question, you said that the payout will be a fixed and uniform one, yet you set a proportional contribution of 5% from the employee. Is that meant to be a form of redistribution of income? The rich supporting the insurance programme of the poor by paying more?
Bacteria: Thanks for your comments.
I think the symbolic gesture will not do much for the economy, therefore, from my viewpoint, it’s a political gesture.
I think you underestimate the high leakages. It will come at great costs to implement the welfare-centric policies suggested. Moreover, we are a nation without natural resources, financial resources are a substitute for that deficient.
The natural resources u have in mind are more often a curse than a boon. Oil is often called “black shit from gods”. The only valuable resource is the people and we have plenty (for a little red dot).
which is why the political gesture will help more than u believe. The people are starting to question the leadership which will undermine its ability to lead and implement tough policies. The success of modern day singapore is partly the result of the sacrifices of the old guard who took very little in pay.
PS: looks like ntuc vouchers soon but dun worry, we can still afford it.
Hi Mr Bacteria, I think you may have a misconception of “Also, some leakage (given the high rental labour cost is smaller than u think) the must be tolerated if it can help the local population survive”. Simply put, if you spend $1 in Singapore, 60 cents will exit the economy – because we buy necessities and goods from overseas. Only 40 cents remain in the domestic economy for our growth.
“The people are starting to question the leadership which will undermine its ability to lead and implement tough policie”
I can counter-argue that the PAP govt has the leadership, flexibility, track record and reputation to implement tough policies for people to accept them. People tend to look to the govt in crisis, esp. in a recession.
Bernie,
Forgive me for saying this, you sound very much like a typical Ministerial Scholars more interested in applying Economic theory than actually appreciating the real situation.
The fact is the situation is dire now and people are loosing jobs and vulnerable people are affected. The situation is also quite extraordinary now that quite possibly some “out-of-the-box” thinking is necessary.
Consider some of your points:
I am not a big fan of trickle-down theory but in Singapore’s case, and I have mentioned before, supply-side economics work better than just demand-management economics (or better known as Keynesian economics). Simply because Singapore is a small and open economy. Having a purely deficit-spending budget that help directly ALL residents will be very costly. The multiplier effect of the spending might not be effective and at the end of the day, the reserves are depleted without good results.
Your explanation here is helping people directly is bad period. The argument you presented is that it is costly so it MUST not be done. Is helping people directly not worth the cost?
In any case, even if it is costly, if the cost is managed sustainably, why not do it. After all, you have noted how sloppy the SDP are in numbers, yet you have not been able to show in number terms how costly such a programme would cost (supply vs demand side)?
As for “depleting reserve*”, the real question is what is the reserve for, if you can’t use what is it point? Again if you accuse the SDP of being sloppy economist, than aren’t you using doing the same by using this scaremongering “depleting reserve”
argument without some costing figure?
* When it comes to discussing about reserve, personally, I think there is a bit of misunderstanding of it’s role but that is another complex debate.
Ah Kow: Thanks for your comment.
Do you agree with the SDP 5-point plan as a better budget proposal than the government’s current one? Or do you think that these 5 points can be added to complement the budget 2009 for better results?
Bernie,
Let me respond to your musing this way:
Do you agree with the SDP 5-point plan as a better budget proposal than the government’s current one?
Yes, I think the emphasis on “putting money” in the pockets of the vulnerable one as a general principle is probably much better than the government’s as it stands. After all, economics isn’t about being slave to some theories but it is all about people.
The devil is of course in the details as to how sustainable, by that I mean how much burden will befall on future generations, needs working out. In other words, is it better to make one off transfer payment or a permanently budgeted one, that details need to be iron out.
The SDP has not padded out any details so it is hard to say. How it ought to compare with the government’s CURRENT budget is any body’s guess.
But if you were to speak of whether there is a need for a mindset change, an overall rebalancing of the budget towards helping the people is going to be required. Personally, I am for a form of unemployment benefit/insurance schema or scheme to that effect. The devil is in the detail. But of course, this is not going to help out with the current circumstances now.
Let me expand further on the unemployment benefit/insurance or call it what you like scheme, can be implement it in a clever manner, take an economy like Denmark, which is just as open and small as Singapore they have done it in a clever way. The Danes give unemployment benefit but unlike their French counter-parts have made it flexible for companies to hire and fire. Also, there is a side effect of encouraging entreprenureship. People now are more willing to set-up business and not afraid of failure because they can fall back on unemployment benefit. Likewise, Denmark had also been sucking investment because of the flexible hiring policies.
Or do you think that these 5 points can be added to complement the budget 2009 for better results?
Then the question I need to pose to you is what do you mean by “better results”?
For me, the urgent need now is to support the vulnerable people, so any result that directly helps the people is good. As it stands, the SDP proposal seemed much better than the Government’s but again some more details needs ironing out.
Take the government’s star policy job credit scheme, how effective is it when on the one hand you purport to be helping save jobs when you are pumping money into companies and back to the government (i.e. the GLCs, Stat Boards, etc will be beneficiary?
Contrast it to SDP’s suggestion of cutting transport and GST. This would have a direct impact on the people and if my definition of a better result is focus on the people than it is a good move.
Ok, you might say, heck I am only arguing for political gesture but even if you consider the logic of the government’s policy from an Economic (or more accurately, recycling of money) rationale, the government policy itself is already contributing to the so-called leakage (because of being a small economy) that you have eluded to.
Take transport, are you aware that the transport companies in Singapore are still giving out dividends to shareholders. So if you keep the profitability of these companies high, by keeping up the transport cost, you are in effect recycling money back in dividend form which will eventually leak out. In any case, if you argue that these companies can use these profits to re-invest, hey, were do you think the capital goods for these investment come from — imports. So you are going to have leakage there.
Mind you if you give money to people they buy food, true it means leakage because the food is imported. But when a transport company use it to buy new buses, or spares, it is going to be imported anyway. So you tell me, under current circumstances, which produces better result.
What about the so-called reserve, are we not leaking money there? We pay taxes to generate all these surplus so they can be take by GIC/Temesake to loose it in Western Banks or overseas investment.
Ah Kow: Do you know the personal tax rate for Denmark ranges from 39% – 60% while Singapore’s ranges from 3.5% – 20% and the first S$20,000 is not taxable? Let me venture a “muse”, perhaps that is why Denmark can afford the unemployment benefits – using tax revenue from working people to support unemployed people.
After all, economics isn’t about being slave to some theories but it is all about people.
I don’t have any comments on this. Everyone has his own definition for what economics entail. My definition for economics is the same as eternalhap.
Or I forgot to mention, the current Government Budget calls for increase spending in Defence.
Ok, putting a side so call political gesture, is this increase spending help or to able to produce better result?
After all, isn’t all these increase spending going to “leak” out. After all we don’t manufacture the F-16s and F-15s. Also the spare parts for these where do they come from (import), right?
“After all, economics isn’t about being slave to some theories but it is all about people” lol? Economics is the study of human behaviour regarding unlimited wants but scarce resources. Theories are formed so as to explain and predict people’s behaviour. Like many others, you think economics is just ‘theories’. It’s a very much ‘alive’ subject.
I shall see how Bernie counters your warped arguments.
Mr eternalhap
I assume u have not seen the posts on the Straits Times online website. A few years back, they would be unthinkable. The govt HAD the leadership and respect. These days MPs are getting burnt and threatened. And I assure you we have not seen the worst yet.
And I am fairly confident that your estimate of 60 cents exiting the local economy for every $1 spent has no empirical evidence. Besides, protectionism benefits no one and if nothing else, Singaporeans need to save our malls … our lives is about shopping and eating .. no? :-p
bacteria: According to UNESCAP report on trade monitoring (http://www.unescap.org/tid/publication/tipub2491_chap3.pdf), the marginal propensity to import (MPM) of Singapore from 2002 to 2005 is 0.7, 2.7, 1.3, 2.2. The more than unity number is due to the non-accounting of re-exports.
It is plausible that the MPM (after accounting for re-exports) is close to 0.6. The extreme openness of Singapore’s economy naturally result in a high MPM. 0.6 might even be a conservative estimate.
I doubt UNESCAP will publish their figures without doing due empirical research. They even have technical notes on how they derive their figures.
Bernie,
Do you know the personal tax rate for Denmark ranges from 39% – 60% while Singapore’s ranges from 3.5% – 20% and the first S$20,000 is not taxable? Let me venture a “muse”, perhaps that is why Denmark can afford the unemployment benefits – using tax revenue from working people to support unemployed people.
Looks like you have miss the big picture of what I was trying to say, which is to be open to all policy options and examine it as objectively as possible. Not subscribe to the somewhat narrow way of thinking like (high taxation bad, low taxation good or trickle down policy good, give money to people bad or the class “affordable” argument).
When I chose Denmark’s innovative use of unemployment benefit to kill two birds with one stone (help the people and stimulate investment), you immediately hone in on taxation point. Oh well so be it. If that is the debate you want to take then here is my respond:
So what is the different between Singapore Government giving five-years tax breaks (effective zero) taxation to foreign investors. How come the we can afford to give zero tax breaks to companies?
In other words, using tax revenues from the people of Singapore to support foreign companies that then demand your country to open up employment to foreigners or to support failing companies like Chartered Semiconductor and other fashionable industries, which turns up to be dude.
The Danes use their unemployment benefit to two good effect, (a) make it easy for people to start up companies and (b) to attract investments. So clever use within the context of their economic constraints.
I admire Denmark for their excellent and efficient social services. However you are also missing my point, which is how they are able to provide such excellent social services which includes the unemployment benefits? My guess is because of the high income tax.
Assuming Singapore is to follow a similar social service model, where is the money going to come from? The reserves?
I hone in on the tax to bring across the point that Singapore need to have the funds to sustain such social welfare programmes, if we don’t have the money (through tax or reserves), there is really no point gushing over how good the Danish social services are.
Perhaps like what you keep mentioning, “the devil is in the details”. If the amount spent on such services still allows Singapore to have a modest budget surplus on a regular basis, then we could probably sustain such social services which will bring welfare to the residents.
Calculating the amount needed for such social services is out of my depth.
Bernie,
I admire Denmark for their excellent and efficient social services. However you are also missing my point, which is how they are able to provide such excellent social services which includes the unemployment benefits? My guess is because of the high income tax.
Perhaps. But does it necessarily have to be through taxation?
It could also be done via a form of insurance funded scheme, just like the South Korean model. Or it could be some kind of mix scheme.
Who knows. In any case, like it or not we are going to face a future where some kind of permanent social welfare scheme will have to be in place. This is in part cause by the changing nature of the economic landscape. Gone are the days where you one can expect jobs for life. So we cannot expect businesses to bare social cost. For example, I remember my father working for an American MNCs many moons ago having his and the family health care paid for by the company. I also remember I had a big operations all paid for by the company. I also remember a time when the company funded my dad’s CPF to a tune of 25% of the overall contribution.
Also now a days, companies want to be able to hire and fire easily, which means people will have to go through unemployment cycle. So like it or not we have to choice:
(a) Ignore this reality and go on as before;
(b) Or face up to the reality that we might have to implement so kind of unemployment security scheme.
If we went for (b) then let’s be smart about it. Just like the Danes have.
You brought up the issue of reserve the short answer is yes we can fund it from that but there is a long answer which I will address later otherwise, it will lead to misunderstanding.
Mr Bacteria: “I assume u have not seen the posts on the Straits Times online website. A few years back, they would be unthinkable. The govt HAD the leadership and respect. These days MPs are getting burnt and threatened. And I assure you we have not seen the worst yet”
Your assumption cannot be justified ;) What a over-generalisation – turning an isolated accident into a perceived revolt against the PAP. For your info, the one who burnt Mr Seng wasn’t in a right mind. Your argument ‘we have not seen the worst yet’ is fallacious and so it’s dismissed!
And thanks Bernie for providing the ‘empirical evidence’!
Omg is it S’pore time here? Mr Ah Kow and Bernie actually commented at 2am, 3am plus? OK, Mr Ah Kow, we shall wait for your ‘long answer’ (:
Hi,
I think Al has largely hit the nail on the head with most of the points in his:
post http://eternal-hap.blogspot.com/2009/02/sdp-version-of-spore-budget-2009.html
I don’t think Bernie is implying that welfare is completely no good, just that the policies being suggested by SDP do not seem to have been considered with economic growth/sustainability in mind. In this respect I think he’s right.
On the other hand I think its only fair that some sort of redistribution policy be put in place to aid the ‘trickle down effects’ – we all already acknowledge that its less than perfect.
Whatever it is, some sort of aid is needed directly for the individuals affected – lest theres nobody left when the better times return.
Mike
eternalhap:
Omg is it S’pore time here? Mr Ah Kow and Bernie actually commented at 2am, 3am plus? OK, Mr Ah Kow, we shall wait for your ‘long answer’ (:
Ok I am a sad person with nothing better to do but to reply to people’s blog :-)
As for the long answer, it may involve off topic discussion, which could flood this blog. Since this is Bernie’s blog, I’ll let him decide if he wants to her me out. If he say yes, I will try to explain my thoughts here. Ideally, I should have my own blog as an addendum to my respond but I don’t have one.
Al: Welcome =)
Mike: Thanks Mike for understanding my POV when I wrote down the post. Hit it right on the nail. I’m leaning towards providing social welfare services as long as they are sustainable and I don’t have to pay an exorbitant percentage of my income as tax.
Ah Kow: Haha, we are just late sleepers, that’s all.
I don’t mind Ah Kow penning down his long answer. I’m interested to read your argument on the use of national reserves to fund social welfare services =)
Bernie,
I’ll try my hand at blogging my really really long respond and in future past the link to you. This is in part, in my opinion, a common misunderstanding of what a reserve is for. And I’ll probably have to explain it under my Tan Ah Kow’s Economics 101 “master” class so people can get a fuller appreciation of what I am trying to say. Trying to explain it here would be too overwhelming.
In the meantime, it might be worth reading up on this article, which I find useful knowledge based to appreciate the rational of “national reserve”: http://www.ssga.com/library/esps/Soverign_Wealth_Funds_Andre_Rozanov_4.27.07rev2CCRI1182371372.pdf
But in essence if I were to implement an unemployment benefit scheme, I would go along the lines of Norway’s Pension Fund approach and, possibly, mixing it with the approach currently used by South Korean.
I would envisage my scheme to be a bit like the CPF where contribution from employee and employer but specifically design as a unemployment insurance scheme underwritten by the Government through a fund, operating much like the Norwegian Penson Fund (i.e. National Reserve), where the money held in the fund is used to invest for return. But in this modus operandi, the “reserve” is essentially functioning like a buffer to plug any short fall in budgeting cycle. In good time, any surplus can go back to the fund “reserve” to earn returns. The reserve is not just something we pile up for the sake of it until rainy days come.
The proposed fund should not be lumped with the other kind of “reserve”, which is purely to defend our currency.
Currently, the way our National “reserve” is managed is we lumped all the money into a single or possible two pots (GIC and Temaske). As you will see from the article in the URL above, this has the consequence of making the act of drawing down on the reserve complicated because the goal of the reserve is no longer clear (i.e. is the reserve meant to be a buffer or is it some thing for used only on a “rainy” day, whatever the definition is ).
Interesting suggestion.
“Tan Ah Kow’s Economics 101 “master” class”. Ah, I’d prefer you hold an econs degree or have some solid econs backgrd before I attend it.
eternalhap
Yes I have a degree in “Tan Ah Kow’s Economic” from the “University of the Real World”, and the Institute of “I can think for myself and not rely on someone with a degree to tell me how to think!”.
Good enough for you!
Hmm you seem to say that the measures will not work but you don’t seem to say why. Your views mentioned above seem to be in line with conservative PAP ones all through these years, not that I’m equating you to them though.
Some of the proposals made by the SDP have even been echoed by PAP MPs themselves actually.
Hi DS, thanks for your comments.
I believe I have explained in brief why each of the 5 points would not work.
First, we have to understand PAP government’s socio-economic formation. In other words, for whose benefit the economy is structured the way it is.
The economic model of the PAP is one of subjugating the people, especially the workers who form the majority of the citizenry, to the mercy and disposal of foreign multinationals, mainly those from the US, Europe and Japan, looking for cheap labour to maximize their profits.
In its strategy to facilitate the MNCs, who are in control of 75 per cent of Singapore’s manufacturing sector, the growth of indigenous entrepreneurs has been deliberately stifled. This has led to the mushrooming of government-and-Temasek-linked companies dominating the local scene in the name of small and medium enterprises. Inevitably, the growth of GLCs and TLCs have bred nepotism and cronyism, benefiting those connected to the authoritarian regime.
Singapore’s economy is far from being open. It’s the most controlled socio-economic formation designed to benefit the super rich, foreign economic criminals, money launderers, etc.
PAP’s planned economic policy has led to the marginalisation of local SMEs, the small businessmen who are mainly retailers in HDB estates, the workers, the poor, the needy, etc.
In order to keep this unhealthy and unsound economic formation intact, the PAP government has deliberately allowed the influx of foreign cheap labour from Third World countries in the name of foreign talent. The FT policy is also aimed at implementing PAP’s social engineering programme unhindered.
PAP’s socio-economic formation has led Singapore into a deep economic malaise, the worst in its independent history. What is more glaring is the admission of the PAP leadership that things would improve once the US economy picks up! Is this for what we are paying them millions of dollars in salary? What happened to their so-called helicopter vision to foresee impending problems way ahead? What happened to the brilliant economists in their midst? Why did they not predict the economic mess that the country has found itself in since October last year?
All that the PAP economists could say is: wait for the US to pick up! In the meanwhile, the economy is hurtling down, contracting as low as minus 10 per cent.
The SDP’s budget proposal is people centred, placing importance to the plight of Singaporeans who are living under fear, exploitation and oppression of a feudal system that is devoid of sound economic rationale.
The theory that Singapore’s current economic model benefits the rich more than helping the rest is well-mentioned about. This theory is also used by Barack Obama to expound the cronyism with the Washington elite and why America needs to change, or Washington needs to change.
However, I disagree to consider SDP’s proposal, based on the assumption that the government’s way of business is just benefiting the rich. I am open to considering any party’s budget proposal based on economical and social analysis. SDP’s proposal might be high on social benefits, but the economics foundations appears to be shaky. I disagree with deficit spending, unless it can be justified with future cost savings.
Again, using USA as an example, their massive healthcare reform proposal is based on the assumption that the government would spend more now, so that they will spend less later. Perhaps if SDP’s proposal can shows estimates that if the government spends on welfare now, it will be better in the long run, then the proposal would warrant a closer look.
Dear Bernie, you wrote that, “I disagree to consider SDP’s proposal, based on the assumption that the government’s way of business is just benefiting the rich”.
But doesn’t the income divide reflected in a recent Gini index speak for itself? Singapore’s income inequality shockingly belongs to the some of the most undeveloped states.
“With a Gini Coefficient of 48.10 based on 2008 statistics, Singapore’s income inequality shockingly belongs to the some of the most undeveloped states. Based on this ranking, it is in fact more unequal in this aspect as compared to other developing neighbouring countries including but not limited to China (at number 36); Malaysia (at number 38) and Philippines (at number 40).”
Source: http://aussgworldpolitics.wordpress.com/2009/06/15/the-case-for-income-equality-in-singapore/
-Seperately-
You say that reduction of 5 percent in transport costs is acceptable, not SDP’s 30 percent. Why? What is your rationale for this? Public transport is a service, It should not be a a profit-making scheme.
Also, you mention certain items should be exempt from GST not suspension. Again why? Exemptions such as basic foodstuffs and medicine should be on a permanent basis. Suspension of GST is for two years. Do we not need drastic measures for drastic times? With the fat reserves and the loss in recent investments, suspension of GST is but a small step.
You don’t need economists to figure these things now. If economists are that good, how come the world is going through this current mess?
DS:
I apologise, I missed out a word from that sentence you quoted. I meant to say “I disagree to consider SDP’s proposal, solely based on the assumption that the government’s way of business is just benefiting the rich”. SDP proposal should be evaluated on its own merit.
I think your use of GINI is a good proxy to support the slight (or more) biasness of the economic policy of the state towards the upper echelons of SG society. Income inequality is a good indicator and is increasingly being used to augment the GDP as a measure of economic and social well-being of a country.
You say that reduction of 5 percent in transport costs is acceptable, not SDP’s 30 percent. Why? What is your rationale for this? Public transport is a service, It should not be a a profit-making scheme.
My rationale is that 30% is too much, and a 5% reduction is a more reasonable and stable percentage to reduce. Public transport is privatised, therefore profit would be a focus of the private company. However bearing in mind that public transport is an essential consumer good for the average person, profit maximisation, ideally, should not be taken too far. That is why I recommended concession for the vulnerable groups (low-income, retrenched, etc) in my post, as an alternative to the massive 30% cut proposed. So these concession should be implemented in addition to the 5% that I proposed. I do not have any economic statistics to substantial the figure ‘5′ (why not 6% or 7% or 50%?).
Also, you mention certain items should be exempt from GST not suspension. Again why?
Correct me if I’m mistaken. You are referring to my recommendations to give NTUC vouchers temporarily and my opposition to giving money for essential items. Because I don’t believe I have mentioned in my post or comments that I think GST exemption for essential goods is bad or should be temporary. I think essential items should be GST free. Items such as rice, selected basic food, basic medicine (for selected OTC items). I think medical treatment is already GST-subsidised for most lower-income or even low-middle income group.
As long as the drastic measures are properly evaluated on their impact for the public and the economy, then they should be implemented. I think big foreign reserves and loss in Temasek’s investments should not be mixed up with proper evaluation on economic policies. They are another issue and I’m very unhappy at the poor investment decisions made as well as the patronising media news explaining the loss. But I would leave it out of my policy evaluation.
You don’t need economists to figure these things now.
What other people would you recommend to figure these ‘things’ out?
If economists are that good, how come the world is going through this current mess?
Dude, I think this statement is generally uncalled for. First, economists are not seers, they have more in-depth knowledge on how the economy works than the layperson, but they are also working with assumptions and imperfect information data. They can predict, but predictions are never 100% correct. Second, Peter Schiff and Nouriel Roubini, two of the many economists and thought-leaders, predicted the impending mess as early as Sep 2006. You need to understand that economists are providing information, but it is policy-makers and state regulators that implement their recommendations. Your statement is extremely biased and unfounded.
Economics is not an exact science. So there could be several interpretations and analysis based on varied inputs into the model.
The prediction that the greedy capitalist economy was headed for its own destruction is not something new. So your attribution of the present crisis to some 2 individuals in 2006 is rather incorrect.
I am not an SDP supporter, but I have read that even the SDP, as far back as 1993, has predicted the folly of PAP\’s socio-economic fundamentals. The present serious economic meltdown proves the point that one should not put all his/her eggs in one basket.
Instead of trying to fix a broken system, let us look into alternatives that would lead to sustained economic progress for the greater good of the people of Singapore, and not the PAP and its cronies and hangers-on, as well as foreign MNCs.
But please understand my friend that I never mean to demean you. Back on to the topic of the budget:
A budget proposal which takes place yearly must not be confused with that of the economic foundation of a country.
Yearly budget proposal can result in a deficit, surplus or balanced. PAP\’s budget has always been tailored to achieve huge surplus, fattening our reserves that include our workers enormous mandatory CPF savings. These reserves are managed by the Government of Singapore Investment Corporation (GIC) and Temasek Holdings, the former headed by Mr Lee Kuan Yew and the latter by his daughter-in-law Ho Ching, without or hardly any accountability and transparency. Where is the accountability/transparency of our huge reserves? How much is left after the recent disastrous attempts to rescue failed foreign banks and financial institutions?
Budget is to mainly address the requirements of development and recurrent expenditures in a particular year and it is not a tool to amass wealth through direct and indirect taxation policy to burden the people.
What can one call a socio-economic formation that has to depend on foreign MNCs, mainly those from the US and Europe, for 75 per cent of its manufacturing? Is this formation advocating an open economy when government and Temasek linked companies are dominating the scene? Where are our indigenous entrepreneurs who were running successful business and commercial houses before Singapore became independent? How did the PAP government become the biggest landlord in the country, owning close to 90 percent of the land?
Of course, we can\’t get the answers to these pressing questions from an authoritarian system that tramples underfoot the basic rights of its citizenry. It\’s no use trying to defend a system that is based on secrecy and concealment.
I started this blog to share my thoughts to anyone who wishes to read and to learn from well-balanced and substantiated arguments in my comments section. We can always agree to disagree :)
A budget proposal is highly correlated to the macroeconomics foundation of a country because it is fiscal policy. I think you might have some confusion on that. There is nothing in a standard macroeconomic textbook that said that deficit or surplus is the correct and best way to conduct the fiscal policy. The opposition to deficit spending is my own personal view. In fact, economics suggests that deficit spending is common during recessionary periods and surplus is common during growth periods.
As I said earlier, the accountability and transparency of the national reserves is another issue. Personal opinion though is that the GIC should be more transparent with their finances since they are dealing with public money. The reason that they are afraid of free riders on their investment choices is a poor one to resist further disclosure.
Budget is to mainly address the requirements of development and recurrent expenditures in a particular year and it is not a tool to amass wealth through direct and indirect taxation policy to burden the people.
I believe that the budget should be taken with a longer-term view as well. I would think that one plan their personal monthly budget while considering how much they might need in the following month. And they don’t just plan to spend solely based on their monthly paycheque, and save the remainder if any.
Regarding your comment on the dependency on foreign MNC, I would argue that the first consideration of the government is to provide adequate jobs. I would think that local companies need to have a level playing field without the government hand-holding them all the way. That would be protectionism, not entrepreneurship.
However the government having too many hands in the pie leave much questioning to be done.
In conclusion, I’m not deliberately defending the ruling party if my views happen to coincide with theirs. Risking to sound like a broken record, I would repeat that I’m basing my views on economic principles and theories, adjusting to local conditions when I have the relevant information, because I’m an economic student.
Perhaps if you want to discuss about how PAP is based in ’secrecy’ and ‘concealment’ or why ‘depotism’ exists in GIC and Temasek Holdings, wayangparty.com might be more appropriate.
Lastly, thank you for your elaborate comment. I enjoyed the discussion :) and I’m still waiting for your reply to what “type” of people is needed to figure things out.
Hi Bernie, glad to know you’re open to this discussion. Let’s continue:
A budget has to be broadly based on one of the three — a deficit, surplus or balanced. But in Singapore, the PAP government has made it a policy to always go for a surplus, even in severe periods of recession and economic downturn. Excess tax/revenue collection has been the hallmark of the authoritarian, feudalistic PAP government.
MNCs were wooed into Singapore in the late 1960s and 70s to provide jobs for our citizens. But they are still being given red carpet welcome with tax breaks and other incentives to provide jobs that go mainly to foreign cheap labour from Third World countries. This attempt on the part of the PAP to bend over backwards to keep and attract MNCs is detrimental to the long term interest of our workers and the country. It’s only good for the rich, the powerful and the PAP to continue amassing wealth for themselves, their cronies and hangers-on.
Continue to rely on the type of MNCs that we attract would only lead us to compete with giants like China, India and other Third World countries.
Hi Bernie, glad to know you’re open to this discussion. Let’s continue:
A budget has to be broadly based on one of the three — a deficit, surplus or balanced. But in Singapore, the PAP government has made it a policy to always go for a surplus, even in severe periods of recession and economic downturn. Excess tax/revenue collection has been the hallmark of the authoritarian, feudalistic PAP government.
MNCs were wooed into Singapore in the late 1960s and 70s to provide jobs for our citizens. But they are still being given red carpet welcome with tax breaks and other incentives to provide jobs that go mainly to foreign cheap labour from Third World countries. This attempt on the part of the PAP to bend over backwards to keep and attract MNCs is detrimental to the long term interest of our workers and the country. It’s only good for the rich, the powerful and the PAP to continue amassing wealth for themselves, their cronies and hangers-on.
Continue to rely on the type of MNCs that we attract would only lead us to compete with giants like China, India and other Third World countries.
Yes, I agree with you that Economics is not an exact science. The prediction prowess of economics is not as accurate as natural science. Various interpretations are common given the same data set into the model.
I believe you misunderstood my citing of the two individuals. I\’m merely giving you examples as your sentence \’If economists are that good, how come the world is going through this current mess?\’ insinuate economists are the cause of the current financial mess by the incompetency of their profession. Therefore, I gave you two economists who warned of the crisis. Following your assertion that the greedy capitalist economy has been heading in the direction of economic destruction, this claim disputed your comment that \’poor\’ economists are the cause of the mess.
In addition, I am also not a supporter of either political parties or their manifesto. It probably just happens that the economics leanings that I worked into my crude evaluations mirrors a little to the PAP\’s policies.
Frankly, I am only concerned with sound economic policies, that as you also hoped, lead to sustain economic growth. I don\’t really care who is in power as long as they do their job, be transparent about public issues and allow the market to more or less correct the inequilibrium.
You wrote: “I believe you misunderstood my citing of the two individuals. I\’m merely giving you examples as your sentence \’If economists are that good, how come the world is going through this current mess?\’ insinuate economists are the cause of the current financial mess by the incompetency of their profession. Therefore, I gave you two economists who warned of the crisis. Following your assertion that the greedy capitalist economy has been heading in the direction of economic destruction, this claim disputed your comment getting oor\’ economists are the cause of the mess.”
In one of your earlier posts, you suggested to the SDP that it should have an economist in the party to understand issues better. Notwithstanding whether SDP has economists in its midst, my assertion was that even economists had failed to foresee the present economic mess that Singapore has gotten itself into.
Nowhere did I say that “economists are the cause of the mess”.
Of course, greedy PAP with its over reliance on the US has brought about the present disaster, the worst in the history of independent Singapore. What we need is a sustainable economic model to benefit the people of this country.