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Budget 2021- Not Enough Stimulus in FY2020, Premature Withdrawal of Aid in FY 2021 and Not Enough Help for Singaporeans



Inadequate Stimulus in FY2020


In my last blog post, written just before the Budget presentation, I pointed out that the economy had suffered as a result of the Government’s failure to provide enough stimulus. Finance Minister Heng had claimed to have spent almost $100 billion on help to Singaporean households and companies. However, Heng’s claim was simply not true.


The analysis was based on the Government’s original figures for 2020 but these have now been updated by the actual Budget statement which Heng presented to Parliament on Tuesday last week, 16 February. Heng claims in his Speech that the revised Budget deficit for 2020 was $64.9 billion. However, his definition of the Budget deficit does not follow the IMF standards for calculating the Government deficit, nor does it make any economic sense.


The calculation of the deficit includes, in the plus column,  the Net Investment Returns Contribution (NIRC) of $18.14 billion and, in the minus column, Top Ups to Endowments and Trust Funds of $17.32 billion. However, the Top Ups do not represent actual spending but rather transfers to earmarked funds that may be spent at a later date. The Analysis of Revenue and Expenditure says that spending from the Endowments and Trust Funds amounted to $5 billion. Initially our SG thought that this should be subtracted from the Top Ups figure but an examination of the footnotes to the Government’s calculation of the overall Budget balance shows that this spending is included in Other Transfers which are subtracted from the Primary Balance in arriving at the Overall Surplus/Deficit. Since any money spent from previously earmarked funds was paid for in previous Budgets, Singaporeans are in effect paying twice for the same spending. This is yet another example of the unethical chicanery and deceit that Heng and other Finance Ministers, including Tharman, indulge in to fool gullible Singaporeans and to make surpluses disappear so they can justify higher regressive taxes like GST!


In addition, Heng said previously that he had allocated $13 billion to the Contingencies Fund after requesting a further drawdown of the reserves. We should also note that between 31 March 2019 and 31 March 2020 the amount in the Development Fund rose by $18 billion while the Consolidated Fund rose by $14 billion.


We will have to see what happened to the Consolidated Fund and Development Fund between 2020 and 2021.  What is clear is that $52 billion is not the real deficit and Heng is deceiving Parliament. It could be as low as $8 billion if we subtract the increases in the Consolidated and the Development Fund and also the $13 billion allocated to the Contingencies Fund.


Also, the Government spent $26 billion on its Jobs Support Scheme. However, as the major employer in Singapore through Temasek Group companies, a large part of this can be treated as a transfer of funds from one Government sector to another. We need to see the General Government Balance which should include all statutory boards and state-owned or affiliated companies. It should probably also include PAP-controlled companies like NTUC Fairprice or even Comfort Delgro. If maybe half of the $26 billion was paid to state-owned firms then the real deficit might even turn into a surplus!


The General Government Surplus should also include all earnings, including capital gains, made by Temasek, GIC and MAS as well as any other Government-owned or affiliated entities that trade with the corporate, household or foreign sector but are not accounted for already. Since the NIRC is only up to 50% of the earnings of Temasek, GIC and MAS, we are probably safe in assuming that the real earnings are at least twice the amount shown in the Budget. In other words, we should be adding at least $36 billion instead of $18 billion when calculating the overall Budget surplus.


In addition, revenue from land sales, which is excluded from the Budget because the Government spuriously calls it part of past reserves, was $7 billion in 2020, down from $11.3 billion in 2019 and is forecast to rise to $11.5 billion in 2021. There is no economic justification for the Government not to include these amounts, like the real earnings of companies in the public sector, from the calculation of the overall Budget surplus.


Since we do not know what the real surplus was in 2020, we do not know what the true fiscal impact of additional spending was. The Finance Minister claims that the deficit was 13.9% of GDP. However, that is false. The true fiscal impact was undoubtedly considerably less than half of this figure. It is possible that the Government still ran a surplus if the widest possible definition is used.


The economy paid the price for the Government’s failure to provide sufficient stimulus. While extra Government spending may have averted the worst outcome, which according to Heng was a fall of over 11% in GDP, the economy ended the year with GDP still lower by 5.4% than it was in 2019. By contrast, the US economy at the end of 2020 was only 3.5% smaller than the previous year where the US Government, like the UK and most of the EU, provided much more generous stimulus measures. In the US case this amounted to more than 18% of GDP and it is looking likely that the new administration will pass a new stimulus bill of close to 10% of GDP.  The better economic outcome for the US was despite the considerably worse effects of the pandemic on the US economy. The US economy is expected to recover all its losses by the middle of this year whereas PM Lee is saying that the Singapore economy may still not have fully recovered by the end of 2021.






Premature Withdrawal of Support


The Government’s failure to do enough for the economy and for Singaporeans is all the more shocking given that global trade had surprisingly recovered to pre-pandemic levels by November 2020 and that our current account surplus in 2020 is almost 20% of GDP, the same as 2019.


This Budget compounds the failures of 2020 by prematurely withdrawing support for the economy. Heng forecasts the overall Budget deficit at $11 billion with an NIRC of $20 billion. Top-ups to Endowments and Trust Funds are zero. However, applying the same reasoning as above, and estimating that the true NIRC is at least double the $20 billion this means that the Budget is actually in substantial surplus. This is even before adding in the forecast $12 billion from land sales and the fact that much of the Jobs Support Scheme money goes to Government-owned companies.


Not only will Singaporeans pay the price in terms of slower growth and higher unemployment, but they will also pay for the Government’s ungenerous support for Singaporean families who have been affected by the pandemic.


Inadequate Help for Singaporean Families


This Budget also provides less than $2 billion in total for other transfers of which only $900 million goes to the Household Support Package. With unemployment likely to rise as the Jobs Support Scheme is withdrawn, many households will face economic hardship. Instead of the derisory $100 vouchers handed out by CDC (which will be worth less than $100 and will also likely cost the Government even less than the $150 million budgeted for) Reform Party would provide a stimulus payment of $1500 to every Singaporean citizen adult and $500 for each child under 21. There are about 3.5 million Singapore citizens of whom about 750,000 are below the age of 20. We estimate the cost of this at about $4.5 billion of which at least 10% will be recouped through higher taxes such as GST.


Reform Party would also look to set up some form of unemployment insurance in line with almost all developed countries. We suggest setting this at a level of 50% of median income for the first six months. Again, this is something that is easily affordable and would provide an automatic stabiliser in the case of future recessions.


Too Much Support Provided to Government- and PAP- Linked Companies


While the Jobs Support Scheme may have temporarily prevented Singaporeans from losing their jobs in sectors such as aviation, tourism and hospitality, there is the risk that it merely postponed the inevitable as it may take many years for demand to recover in these industries post pandemic. In many cases demand may never recover to pre-pandemic levels. New ways of working remotely may mean that business travel and conference demand will be much smaller than it was.  It would have been better for the workers to have received generous unemployment benefits, income support and help in retraining rather than keeping zombie companies alive. Companies would probably have found that they could achieve the same level of output with significantly fewer staff resulting in a big jump in productivity, which has been the experience in the US. Subsidising workers to stay in jobs that might not exist post pandemic is ultimately futile.


The Government’s motivation for this support is not entirely altruistic. While preventing job losses it also ensures that the CEOs and top management of Government-linked companies can continue to keep their jobs and draw inflated salaries while postponing the need for restructuring of management ranks. It also embodies the PAP Government’s mercantilist philosophy that subsidies for production and exports are more important than consumption and that Singaporeans are less valuable than MNCs and Government companies.


No Need for Tax Increases and Need for Borrowing Must Be Explained


In his Budget Speech Heng talks about the need to bring forward the GST increase and to find new sources of revenue to rebuild the reserves. Without providing transparency on the Budget and the real General Government Surplus, Heng has no justification to increase taxes. I have repeatedly highlighted the highly questionable, even criminal, accounting tricks employed by Heng, and Tharman before him, to hide the real surplus and the Government’s abundance of riches from Singaporeans. In this analysis I point out that Singaporeans appear to be paying twice for Top-Ups to Endowments and Trust Funds, once when the funds are created and again when the money is spent. If a company was doing this the CFO would be prosecuted and jailed.


Previously I argued that there was no reason for the Government to maintain such a high level of reserves, which I estimated to be at least $1.5 to $2 trillion excluding the value of the 80% of Singapore’s land that it owns. In fact it was inequitable on intergenerational equity grounds to hand such a large windfall to future generations, many of whom are first generation immigrants who have not sacrificed anything to build Singapore. Our descendants will in all probability be far richer and healthier than the current and past generation of Singaporeans. I argued that rather than the opaque charade of the NIRC, much of which is recirculated back into the reserves, we should just spend 4% of the reserves every year on improving Singaporeans’ lives.


As is usual with the PAP, Heng in this Budget has appropriated my language without acknowledgement. However, his rationale for doing so is highly suspect. Without providing transparency on the total reserves and the real widest possible General Government surplus or increasing the amounts spent on Singaporeans, he is asking for Parliament’s authorization to borrow up to $90 billion for long term infrastructure projects through a new Act of Parliament, the Significant Government Infrastructure Loan Act. Parliament should require the Government to explain why it needs to borrow when the reserves should be able to cover the borrowing limit twenty times over. It would only be a good deal if the Government succeeds in borrowing at zero or negative rates. Is this sudden need to borrow a sign, along with Heng’s desperation to raise new revenue, that the Government is trying to hide large losses in the reserves?


Kenneth Jeyaretnam
Secretary General
For and on Behalf of the CEC


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