SINGAPORE BUDGET 2009
Hongbao how big?


By Zhen Ming


EXPECT a soon-to-be-announced revised growth forecast to tell us the obvious — that our GDP will probably shrink by more than 2 per cent this year or, at best, stay flat.

So what relief can the middle class wish for in Mr Tharman’s Budget Speech on Thursday to help them soothe the pain of an Ox Year burdened by wage freeze and cuts?

Also, will Budget 2009 feature a bold stimulus plan that deftly combines the right amount of increased Government spending with an appropriate tax cut?

That is, will Budget 2009 emulate the audacious US$825 billion (S$1.23 trillion) "American Recovery and Reinvestment Bill of 2009" unveiled by US lawmakers last Thursday?

On a year-on-year basis, the Singapore economy expanded by 1.5 per cent last year (no great shakes, when you compare it to the 7.7 per cent growth achieved in 2007).

What’s disturbing, however, is the speed of the economy's deterioration, as it actually contracted at an annualized pace of 12.5 per cent during the last quarter.

To figure out how Singapore can remedy this situation, let’s check out what US lawmakers will vote on in late January (when we’re still celebrating the Chinese New Year).

Firstly, the new US$825 billion fiscal recovery package — equivalent to US$2,700 for every American (now that’s a big hongbao!) — will feature roughly US$550 billion in spending increases and US$275 billion in tax cuts.

But that’s not all.

This huge deficit spending — possible only because America is the only country still privileged enough to print all the paper money it requires — will be supplemented by another US$350 billion still available to help bail out US banks.

All in all, it’ll be an unparalleled US$1.175 trillion in extra government spending to allow President-elect Barack Obama to shore up the tottering US economy.

Expect Mr Obama (who will enter the White House on Tuesday) to immediately start work by pumping in billions to boost US healthcare.

Expect him to pour in additional billions to support US schools and colleges.

Expect him to invest billions in infrastructure spending (including highway construction and repair).

And expect him to also spend billions to encourage energy production from renewable sources.

For Singapore, this public spending aspect of Budget 2009 is a no-brainer.

Expect Finance Minister Tharman to announce measures to expand or improve our infrastructure (to prepare for better times) — not by printing money out of thin air though, but by dipping into our vast pool of hard-earned reserves built up over the years.

And then there’s that across-the-board income tax cut promised by Mr Obama.

Under his just-unveiled stimulus plan, each American worker will now receive up to US$500 (and each family up to US$1,000) through a cut in payroll taxes.

For Singapore, this aspect of Budget 2009 is tougher to call.

Expect Mr Tharman to offer Singaporeans some sort of a hongbao tax break — perhaps an anti-recession dividend or even another GST offset package.

The US stimulus package also includes billions for extended jobless benefits and retraining as well as billions to help the jobless keep their health coverage.

And for the poorest Americans, it includes additional billions for a temporary increase in food stamps (government vouchers to buy staples at US grocery stores).

This safety-net aspect of Budget 2009 — how best to help and retrain the down and out (without eroding their work ethic) — is probably the most touchy.

But, as in past recessions, expect tweaks in the way we dole out assistance to the jobless and the destitute.

In the end, Mr Tharman’s biggest challenge is to devise a Budget that can help keep the Good Ship Singapore afloat in the midst of a global economic tsunami.

Hopefully, a fat stimulus hongbao in Budget 2009 can help convince Singapore consumers and businesses that worst will soon be over, thus paving the way to a speedier recovery.

Expect one of three global economic scenarios (totally beyond Singapore’s control) — a prolonged depression (unlikely), a quick recovery (wishful thinking), or an extended period of anemic growth (most probably 3-5 years).

Come what may, however, expect Budget 2009 (and subsequent budgets) to definitely help ease the pain.

Source: The New Paper, Sun 18 Jan 2009